UPDATE 2-Money market funds suffer outflows of $32 bln; stock funds gain -EPFR

Fri Feb 22, 2013 4:37pm EST

Feb 22 (Reuters) - Fund investors worldwide turned positive on higher-yielding assets in the latest week, yanking $32 billion in money market funds and pouring $8.58 billion in equity funds, data from EPFR Global showed on Friday.

Funds that hold U.S. stocks enjoyed net inflows of $2.24 billion, a reversal of last week's outflows of $3.62 billion, in the week ended Feb. 20, the fund-tracking firm said.

Additionally, high-yield junk bond funds attracted inflows of $135 million in the latest week, up from last week's outflows of $207 million.

"I'm seeing a 'Great Shift' rather than a 'Great Rotation'-mainly because rotation means actively moving out of bonds and into stocks," said Cameron Brandt, director of research at the firm. "I see a greater relative share of new money going into equities."

The so-called Great Rotation out of expensive, low-yielding bonds back into undervalued equity has been much-debated since the beginning of the year. The appetite, or lack thereof, for equities serves as an important barometer of investor confidence and how people feel about the state of economic growth.

Brandt told Reuters that he estimates roughly $12 billion of outflows from money market funds found their way into higher-yielding assets including equities and high-yield junk bond funds.

Equity markets have surged as major central banks have repeatedly delivered monetary support to vulnerable economies. The injection of liquidity has been credited with driving investments in riskier assets.

So far this year, the Standard & Poor's 500 index is up 5.68 percent.

Rising confidence in economic growth prospects are also drawing investors into the market.

"The animal spirits are being rekindled," said Kathleen Gaffney, the highly-regarded portfolio manager at Eaton Vance.

Gaffney cites merger-and-acquisition activity as well as capital spending trends.

A Thomson Reuters analysis shows that for 2013, more Standard & Poor's 500 firms are forecasting capital expenditures that exceeded analysts' expectations than at any time in the past four years. Recent U.S. government data showed a rise in equipment and software spending in the final quarter of 2012.

Gaffney added that she wouldn't be surprised if worldwide equities outperformed this year as interest-rate risk could pressure fixed-income markets.

Emerging market equity funds attracted inflows of $2.2 billion in the latest week while European equity funds saw inflows of $1.46 billion, up from last week's outflows of $38 million.

According to EPFR, the $32 billion of outflows from money market funds are the most in 35 weeks. U.S. money market funds accounted for $25.8 billion of that, the biggest since the middle of 2011, Brandt added.

All told, all bond funds still found fans. Inflows were $3.47 billion, up from last week's inflows of $2.58 billion. For their part, U.S. bond inflows were $1.77 billion, down from last week's inflows of $2.28 billion.

"The hunger for yield has never been stronger," Brandt added.