NEW YORK, Sept 21 Investors poured $17 billion in new cash into equity funds worldwide in the latest week, the most in over four years, in the wake of the Federal Reserve's aggressive announcement that it would purchase mortgage bonds to jolt the U.S. economy, data from EPFR Global showed on Friday.
Equity funds overall, from U.S.-focused to portfolios with a bias toward emerging markets, have seen outflows for four of the past six weeks, and so far this year have earned just $20 billion in inflows. That's far less than the $190 billion into bond funds year-to-date, said EPFR Global.
The inflows in the latest week mark a "huge, substantial reversal" from a well-established risk-off trend as investors believed that the Fed's move would boost stock prices, said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which has $14.7 billion in assets.
U.S. equity funds have seen net outflows so far this year of $675 million, EPFR Global said.
The Fed said on Sept. 13 it would buy $40 billion of agency mortgage securities per month and keep benchmark interest rates low until mid-2015 until the U.S. jobs outlook improves, which kicked off a rise in the S&P 500 of 1.71 percent over the week.
The appetite for risk extended to the shares of indebted euro zone countries, as the region's equity funds collected $1.9 billion in new money, the most since May, EPFR Global said.
Investors had already viewed European stocks as cheap, and the Fed's statement along with the European Central Bank's new bond-buying program reduced fears about the region's debt crisis and helped spur the inflows, said Steven Bleiberg, head of asset allocation at Legg Mason Inc.
Funds that hold emerging market stocks gained $4.3 billion in inflows, another sign of broad risk-on sentiment in response to the Fed's move and an upsurge from modest inflows of $447 million the previous week.
"When people want risk and volatility in their portfolio, that's automatic," Wirtz said with regard to the inflows into emerging market stock funds, and added that emerging markets will grow faster than developed markets.
Investors also dove into high-yield "junk" bond funds, which attracted $3.6 billion in new money, the second-highest on record and accounting for most of the net $3.9 billion flows into U.S. bond funds, EPFR Global said.
High-yield bond funds continue to attract new money because of strong corporate balance sheets and the widespread hunger for yield, said Wirtz.
OUT OF SAFE BONDS, INTO GOLD
U.S. government bond funds bled $869 million as their safe-haven appeal was lost on investors, with $421 million of the outflows leaving funds that hold short-term government debt.
The yield on the benchmark 10-year Treasury note rose to 1.74 percent after the Fed's announcement, after touching a record low of 1.39 percent in late July. The 10-year is currently yielding about 1.77 percent in intraday trading on Friday.
Bond funds worldwide attracted $6.3 billion, down from $7.26 billion the previous week, EPFR Global said.
Investors targeted emerging market bonds as well, but less than the countries' stocks as those funds' gained $1.25 billion, down from the previous week's $1.63 billion.
European bonds saw dampened demand as $315 million left the funds, the most in 11 weeks according to EPFR Global. Bleiberg of Legg Mason said that declining yields on the region's debt in response to the ECB's easing drove away investors.
Funds that target commodities gained $2.3 billion in inflows, the most this year according to EPFR Global, with about$1.63 billion of that flowing into gold funds.
Gold funds are "the first thought that comes to mind whenever you have monetary action" in response to a weakened dollar, said Wirtz.