NEW YORK Investors in funds based in the United States poured $11.84 billion into stock funds in the latest week, the most since late January, as investors overcame fears of a pullback in the Federal Reserve's stimulus, data from Thomson Reuters' Lipper service showed on Thursday.
Funds that hold only U.S. stocks accounted for most of the gains in the week ended July 10 and attracted $10.74 billion, the most since September 2011. Volatility fell over the week as U.S. investors were less rattled by the prospect of the Fed cutting its bond-buying later this year.
Along with diminished concerns of a pullback in the Fed's stimulus, strong U.S. jobs data and optimism heading into the corporate earnings season boosted the benchmark S&P 500 .SPX 2.3 percent over the week.
"It was time for people to rationalize their fears and move forward," said Jeff Tjornehoj, head of Americas research at Lipper, on the inflows into stock funds.
He was referring to investors who had avoided stock funds in response to fears that the Fed could reduce its stimulus later this year. Fed Chairman Ben Bernanke told Congress on May 22 that the central bank could reduce its stimulus later this year if the U.S. economy looked strong enough.
The Fed is buying $85 billion each month in Treasuries and agency mortgages in an effort to spur hiring and lower long-term borrowing costs. The stimulus has been a major support for both bond and equity markets.
Exchange-traded funds that hold U.S. stocks took in $8.4 billion, the biggest inflows into the funds since September 2012. The SPDR S&P 500 ETF (SPY.P) gained $5.52 billion in new cash.
Mutual funds that hold U.S. stocks, meanwhile, attracted $2.34 billion, the most since the first week of the year. 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 dividend-paying stocks were a bright spot and gained $471.35 million in new cash, the most in nine weeks.
Funds that hold emerging market stocks suffered relatively small outflows of $102.5 million over the weekly period, reversing the prior week's inflows of $1.65 billion, despite the MSCI world equity index's .MIWD00000PUS rise of 2.07 percent over the period.
Tjornehoj of Lipper said that investors favored U.S. stocks for the safety of the United States relative to stocks in regions such as Europe and Brazil, which face greater economic uncertainty.
Funds that hold non-U.S. stocks still managed to attract $1.1 billion over the week, although that sum was half of the prior week's inflows. Japanese stock funds attracted $556.3 million, the most in seven weeks as Japan's Nikkei average rose 2.6 percent.
Funds that hold taxable bonds suffered outflows of $236.9 million in the week ended July 10 after gaining $3.32 billion in inflows the previous week. Investment-grade corporate bond funds attracted a modest $272.9 million, while riskier high-yield junk bond funds attracted a meager $12 million.
Municipal bond funds suffered $1.2 billion in outflows, modestly greater than the prior week's outflows but a drop from record investor withdrawals of $4.5 billion in late June.
"We still have higher interest rates, and I think that has spooked your bond fund investor," said Tjornehoj of Lipper.
While demand for stocks showed diminished fears of a Fed pullback, the yield on the benchmark 10-year U.S. Treasury still rose 17 basis points over the week. The safe-haven bond's yield has risen 95 basis points since May 2 on fears that the Fed could reduce its bond-buying. As yields rise, prices fall.
Investors also pulled $250.3 million from funds that hold inflation-protected bonds, marking the 13th consecutive week of withdrawals from those funds. Tjornehoj of Lipper said there are no signs of looming inflation in the U.S. economy.
Money market funds, which are low-risk vehicles that invest in short-term securities, gained $22.9 billion over the week, the most since the start of the year. Institutional investors committed nearly all of the new cash to the funds, said Tjornehoj of Lipper.
Investors pulled $998.8 million from commodities and precious metals funds, which mainly invest in gold futures. The outflows were more severe than the previous week, when investors withdrew $92.6 million.
The price of spot gold rose 1 percent over the week, however, as investors saw value in the commodity following price declines in late June.
The weekly Lipper fund flow data is compiled from reports issued by U.S.-domiciled mutual funds and exchange-traded funds.
(Reporting by Sam Forgione; Editing by Dan Grebler and Lisa Shumaker)