NEW YORK Investors in funds based in the United States poured $6.61 billion into stock funds in the latest week, marking a recovery from the prior week's outflows as the S&P 500 hit record highs, data from Thomson Reuters' Lipper service showed on Thursday.
The new cash into stock funds in the week ended May 1 is the most in seven weeks, and marks a turnaround from the prior week, when investors pulled $7.3 billion out of the funds. Those outflows were the most since July of last year.
Stock exchange-traded funds took in $4.72 billion of the new cash, up from the prior week's steep outflows of $8.4 billion. Stock mutual funds, meanwhile, attracted $1.9 billion in new cash, up from $1.07 billion.
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.
"People were more optimistic on some corners of the market with respect to earnings season," said Jeff Tjornehoj, head of Americas research at Lipper.
With regard to earnings, 342 companies in the S&P 500 had reported by the end of Lipper's weekly reporting period. Among those, 68.7 percent had beaten expectations while just 43.2 percent had reported better-than-expected revenue. Those revenue results, however, fall below the average rate over the past four quarters.
Among the inflows into stock funds, those that hold only U.S. stocks pulled in $4 billion, a reversal from the prior week's outflows of $8 billion. The iShares:Russell 2000 index fund (IWM.P) was the top gainer with inflows of $1.66 billion.
"Investors were more confident in the state of small cap stocks," said Tjornehoj of Lipper, in reference to index's exposure to small capitalization companies.
Tjornehoj said that investors flocked toward small-cap companies since they are less reliant on earnings from business outside the United States, and are consequently less exposed to Europe's debt crisis.
Even as the index hit record highs, the S&P 500 rose just 0.25 percent over the reporting period. Weaker-than-expected growth in U.S. gross domestic product in the first quarter and a report that private employers added just 119,000 jobs in April dampened sentiment.
Still, improved data on U.S. unemployment at the start of the week and expectations that the Federal Reserve would keep its $85 billion bond-buying program unchanged at a two-day meeting boosted stocks over the period.
The S&P 500's record highs at the end of the week did not keep investors from pulling $427.32 million out of the SPDR S&P 500 ETF Trust (SPY.P), which stemmed from investors favoring smaller companies on account of their lesser exposure to overseas markets, according to Tjornehoj of Lipper.
The SPDR Gold ETF (GLD.P) suffered the biggest outflows among ETFs of $830 million, which still marked an improvement from the prior week's outflow of $1.92 billion. Gold bullion suffered its biggest-ever daily trading loss on April 15.
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 stocks outside of the United States also saw higher demand with inflows of $2.6 billion over the reporting period, the most since mid-February. MSCI's all-country world equity index .MIWD00000PUS rose 1.2 percent over the weekly period.
Funds that hold European stocks pulled in $197.3 million in new cash, the most since mid-January and a rebound from six straight weeks of outflows. Within that group, funds that hold stocks in the United Kingdom took in $56 million in new cash, while funds that hold Italian stocks took in $35 million.
Italy formed a broad coalition government under new Prime Minister Enrico Letta over the week after two months of inconclusive general elections, which investors welcomed in the middle of Lipper's reporting period.
Japanese stock funds continued to absorb high demand with inflows of over $921 million. The funds attracted $1.67 billion in the week ended April 17 - the highest on record - in the wake of the Bank of Japan's announcement on April 4 that it would inject roughly $1.4 trillion into its economy to fight deflation, mainly through purchases of long-term Japanese government bonds.
Amid the strong support for stocks, taxable bond funds took in $3.07 billion, down from $4.76 billion and the weakest turnout in four weeks. Investment-grade corporate bond funds pulled in $1.33 billion in new cash, down from $2.24 billion, while funds that hold riskier high-yield "junk" bonds attracted $474.2 million.
Funds that hold Treasuries bled $370 million over the week, the first outflows from the funds in seven weeks. The price of 10-year Treasuries rose, however, at the end of Lipper's reporting period to yield 1.64 percent after the Fed announced it would continue its asset purchases.
Money market funds, which are low-risk vehicles that invest in short-term securities, suffered outflows of $19.35 billion over the week after outflows of $4.4 billion the previous week.
The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.
The following is a broad breakdown of the flows for the week, including exchange-traded funds (in $ billions): Sector Flow Chg ($Bil) % Assets Assets ($Bil) Count All Equity Funds 6.607 0.20 3,254.428 10,194 Domestic Equities 4.005 0.17 2,406.557 7,536 Non-Domestic Equities 2.602 0.31 847.871 2,658 All Taxable Bond Funds 3.075 0.19 1,617.938 4,921 All Money Market Funds -19.349 -0.83 2,298.881 1,364 All Municipal Bond Funds -0.391 -0.12 328.490 1,373
(Reporting by Sam Forgione; Editing by Lisa Shumaker)