Investors bet big on non-U.S. stock ETFs as year-end eyed-EPFR

NEW YORK Fri Dec 14, 2012 3:26pm EST

NEW YORK Dec 14 (Reuters) - Investors poured fresh money into stock funds worldwide with an emphasis on exchange-traded funds that hold foreign stocks as the end of the year approaches, data from EPFR Global showed on Friday.

Stock funds worldwide attracted $8.88 billion in new money in the week ended December 12, dwarfing the previous week's inflows of $2.3 billion but falling short of the massive $14.86 billion the funds received in the last week of November, the fund-tracking firm said.

Bond funds worldwide still pulled in $5.24 billion in net new cash, the most since mid-November, with chunks of that total flowing into European, emerging market, and high-yield "junk" bond funds.

Stock ETFs attracted over $12 billion in new money, while actively managed stock funds suffered outflows of $3.23 billion, EPFR Global said. The inflows into ETFs show a high demand for passive stock funds, largely on the part of institutional investors, illustrating opportunistic buying.

As the end of the year approaches, investors are acknowledging strong stock market performance worldwide this year, said John Stoltzfus, chief market strategist at Oppenheimer and Co.

Investors showed renewed appetite for ETFs that hold foreign stocks and pumped $5.32 billion into emerging market stock funds, the most in nearly a year. European stock funds also attracted fresh demand with inflows of $1.6 billion, the most in roughly three months according to the fund-tracker.

"There are European stocks that U.S. investors are looking to own on expectations that those companies do a lot of business with Asia and the U.S.," said Stoltzfus, and mentioned the healthcare, consumer discretionary, and materials sectors.

Funds that hold Chinese stocks stood out with huge inflows of $1.4 billion, the most in four years according to the fund-tracker, with $1.3 billion of that sum flowing into ETFs that hold Chinese stocks.

Upbeat data over the week showed that factory output in China, the world's second-biggest economy, accelerated to its highest in eight months in November.

The benchmark S&P 500 stock index rose 1.36 percent over the reporting period, despite a lack of progress in negotiations between U.S. President Barack Obama and Congress over the looming "fiscal cliff" of tax increases and spending cuts.

On Wednesday, the final day of EPFR Global's reporting period, the Federal Reserve ramped up its monetary stimulus program and committed to monthly purchases of $85 billion in Treasuries and mortgage-backed bonds in an effort to spur economic growth. The Fed also specified that interest rates would remain near zero until unemployment falls to at least 6.5 percent.

The yield on the benchmark 10-year Treasury fell to 1.59 percent on December 6 on expectations that the Fed's policy-setting panel would announce its extended stimulus plan after a two-day meeting. The yield on the safe-haven bond has since risen to 1.71 percent in intraday trading Friday.

The inflows into emerging market stock funds over the week trounced a $1.66 billion inflow into U.S. stock funds, which still showed an improvement after the U.S. funds suffered outflows of $2.41 billion the previous week.

As with stock funds, investors favored bond funds that hold non-U.S. assets. Emerging market bond funds attracted $1.6 billion in new cash over the period, while European bond funds attracted $1.07 billion.

Inflows of $1.68 billion into high-yield "junk" bond funds also showed investors' willingness to take risk over the week.

Investors tend to seek high-yield and stocks at the same time, said Wayne Kaufman, chief market analyst at John Thomas Financial, and could be adding to their bets on the risk assets.

"People have just been dramatically underinvested in equities, and if equities do have that strong correlation with junk bonds, then they've probably been relatively underinvested in junk bonds also," Kaufman said.

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