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UPDATE 1-Stock funds worldwide attract record inflows in 2013-BofA
January 3, 2014 / 4:10 PM / 4 years ago

UPDATE 1-Stock funds worldwide attract record inflows in 2013-BofA

By Sam Forgione

NEW YORK, Jan 3 (Reuters) - Stock funds worldwide attracted $4.4 billion in new cash in the latest week, bringing record inflows to about $251 billion last year after the U.S. Federal Reserve's bond-buying stimulus fueled record highs in U.S. stocks, according to a research report released on Friday.

Funds that specialize in U.S. stocks attracted $2.8 billion for week, bringing inflows to about $115 billion in 2013, data from Bank of America Merrill Lynch Global Research showed.

The Fed's $85 billion in monthly purchases of Treasuries and agency mortgage securities, implemented in an effort to spur hiring and lower long-term borrowing costs, kept bond yields low and drove demand for riskier assets like stocks.

The Standard & Poor's 500 stock index repeatedly setting record highs throughout the year. The index ended the year up 29.6 percent, marking its best year since 1997.

"It certainly was a greater rate of return than most would have predicted," said Rick Meckler, president of investment firm LibertyView Capital Management. Meckler said there was few alternatives to stocks, given low bond yields.

Investors committed $1.7 billion to funds that hold European stocks over the latest week, according to data from the report, which also cited data from fund-tracking firm EPFR Global. The weekly inflows resulted in record $48 billion inflows for the year.

Data released in mid-August showed the euro zone exited a 1-1/2 year-long recession in the second quarter of last year, and many investors have sought bargains in European stocks amid signs of improving prospects in the region.

Funds that hold Japanese stocks attracted $500 million in the latest week, bringing flows to a record $43.7 billion last year, the data showed. Tokyo's Nikkei average rose to a six-year high on Dec. 26 and ended the year up 56.7 percent, buoyed by Japan's aggressive fiscal and monetary stimulus.

Bond funds worldwide had outflows of $1.7 billion over the week, leading to meager inflows of $1.4 billion in 2013. Funds that hold Treasury Inflation-Protected Securities attracted $80 million in the latest week, however, marking the first inflows in 38 weeks.

Fed Chairman Ben Bernanke triggered a selloff in the bond market and ongoing outflows from bond funds on May 22 when he told Congress the central bank could begin reducing its monthly bond-buying later in the year.

Through the end of the year, the yield on the benchmark 10-year U.S. Treasury rose about 140 basis points from a yearly low of 1.62 percent on May 2. Investors feared a pullback in the Fed's bond-buying would hurt bond prices by causing rates to spike higher.

In mid-December, the central bank announced a cut of $10 billion to its monthly bond-buying, starting in January.

Investors pulled $15.6 billion out of emerging market bond funds in 2013. Analysts said they soured on the assets due to fears Fed action would hurt their prices.

Fears of rising interest rates led to sizable inflows of $58 billion into floating-rate loan funds in 2013, the report showed. The securities in the funds are protected from rising interest rates by being pegged to floating-rate benchmarks.

Commodities funds, which mainly hold physical gold, had outflows of $800 million over the week, leading to record outflows of $46.1 billion in 2013. Gold sank by 28 percent in 2013, its biggest annual loss in 32 years, as the Fed announced its plans.

The record inflows into stock funds resulted in investors pulling $56.5 billion from safe money market funds last year. The funds hold low-risk securities and are viewed as a place to park cash.

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