Investors in funds based in the United States poured $16.64 billion into stock funds in the latest week as U.S. stock indexes hit record highs, data from Thomson Reuters Lipper service showed on Thursday.
Inflows into stock funds in the week ended July 17 were the most since the first full week of January. The S&P 500 and Dow Jones industrial average hit record highs for three consecutive sessions at the start of the week on strong corporate earnings and hints that the Federal Reserve's stimulus is unlikely to slow soon.
The latest inflows into all stock funds were the fifth-largest on Lipper's records, which began at the start of 1992. Fed Chairman Ben Bernanke boosted the appetite for stocks when he said on July 10 that the central bank needed to keep its bond buying in place given low inflation and a 7.6 percent unemployment rate that "if anything overstates the health of the labor market."
"Bernanke said the things the market wanted to hear," said Tom Roseen, head of research services at Lipper. Roseen also said that strong corporate earnings and economic data helped drive inflows into stock funds.
The Fed is buying $85 billion in Treasuries and agency mortgages monthly in an effort to spur hiring and lower long-term borrowing costs.
Stronger-than-expected results from top U.S. banks JPMorgan Chase, Wells Fargo, and Citigroup helped lift U.S. stocks during the weekly period.
A report from the New York Federal Reserve also showed accelerating growth in New York State's manufacturing sector in July.
Overall, stock exchange-traded funds (ETFs) pulled in most of the new cash into stock funds with inflows of $12.89 billion. Investors still put $3.75 billion into stock mutual funds, however, the most since early February.
ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor. Funds that hold only U.S. stocks gained $15.58 billion in new cash, the most since June 2008.
ETFs that hold domestic equities attracted $12.45 billion of those gains. Investors committed $6.52 billion to the SPDR S&P 500 ETF Trust, the most in over a year. The ETF last saw that much cash in early July of last year, when it gained $7.03 billion in inflows.
The S&P 500 rose 1.7 percent over the latest weekly period. Funds that hold stocks of companies outside the United States attracted just $1.06 billion of the total sum into stock funds. Funds that hold emerging market stocks attracted $409.6 million, reversing outflows of $102.5 million the prior week.
The MSCI world equity index rose 2.34 percent over the week. Japanese stock funds attracted inflows of $309.7 million, down from inflows of $556.3 million the prior week. Japan's Nikkei average stock index rose 1.4 percent over the weekly period.
Floating-rate loan funds reaped $1.71 billion in inflows over the week, the most since Lipper started tracking the funds in August 2003. Investors sought bank loans in anticipation of a further rise in interest rates when the Fed begins to wind down its bond buying, said Roseen of Lipper.
The Fed's stimulus has been a major source of support for both equity and bond markets, helping to boost the S&P 500 over 18 percent this year. Floating-rate bank loans, also known as leveraged loans, are protected from rising interest rates by being pegged to floating-rate benchmarks.
The yield on the benchmark 10-year Treasury has risen over 90 basis points since May 2. As yields rise, prices fall. Bernanke triggered a bond market selloff when he told Congress on May 22 that the Fed could cut its stimulus later this year if the U.S. economy looked strong enough.
Investors put a total of $3.78 billion into taxable bond funds, the most since early May, reversing the prior week's outflows of $236.9 million. Funds that hold riskier high-yield junk bonds gained $2.67 billion in new cash, the most since October 2011.
Bernanke's reassurance that the Fed would keep a loose monetary policy for some time to lower the unemployment rate pushed investors into high-yield bond funds, said Roseen of Lipper.
The latest inflows dwarfed the previous week's meager inflows of $12 million. Investors also poured $955.6 million into safer investment-grade corporate bond funds, the most in seven weeks.
Funds that hold municipal bonds, meanwhile, suffered outflows of $1.56 billion, the most in three weeks but still less than record weekly outflows of $4.53 billion in the week ended June 26.
Funds that hold inflation-protected bonds, including Treasury Inflation-Protected Securities (TIPS), suffered their 14th straight week of outflows amounting to $382.17 million. Funds that hold Treasurys suffered outflows of $707.6 million, the most in five weeks even as prices rose on the benchmark 10-year Treasury.
The yield on the safe-haven bond fell 18 basis points to 2.49 percent over the reporting period on Bernanke's remarks.
Funds that hold emerging market bonds gained $130.5 million in new cash, the first inflows into those funds in eight weeks. Of that sum, $121.2 million went into mutual funds that hold emerging market debt.
Commodities and precious metals funds, which mainly invest in gold futures, saw outflows drop to $99.5 million in the latest week from $1 billion the prior week. The price of spot gold rose 0.93 percent over the reporting period.
The weekly Lipper fund flow data are compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.
© 2014 Thomson/Reuters. All rights reserved.