November 30, 2012 / 7:56 PM / 5 years ago

Stock fund inflows surge despite 'fiscal cliff' worry-EPFR

NEW YORK, Nov 30 (Reuters) - Investors pumped the most into U.S. stock funds in more than a year, even as U.S. lawmakers wrestled with the looming “fiscal cliff” of combined tax hikes and spending cuts, data from EPFR Global showed on Friday.

Worldwide, stock funds took in a massive $14.86 billion in the week ended Nov. 28, the second-largest total since 2008, reversing the prior week’s outflows of $7.74 billion, the fund-tracking firm said.

Since 2008, that amount was topped only by the $17 billion that poured into stock funds in the week ended Sept. 19, when the Federal Reserve announced an extension of its stimulus plan.

Funds that hold U.S. stocks accounted for $10.52 billion of the overall flows into stock funds in the latest week, the most in roughly 16 months, according to the data firm.

“There’s a sense that if Washington can actually do its job - if you remove that sword of Damocles from over the economy - we might actually get a nice boost at the start of next year,” said Michael Jones, chief investment officer of RiverFront Investment Group, on the fiscal cliff talks.

Bond funds worldwide still managed to attract $5.17 billion in new investor cash, the most in two weeks, with $2.54 billion of that sum invested in U.S. bond funds.

High-yield “junk” bond funds raked in $1.14 billion in new cash, reflecting broad demand for risk assets and reversing outflows of $1.45 billion from the funds the previous week.

“People are so starved for yield, and as prices in high yield fall and the yield rises, inevitably people start buying,” Jones said.

The benchmark S&P 500 rose 1.36 percent over the reporting period despite uncertainty over whether U.S. President Barack Obama and Congress would reach a deal on the fiscal cliff. Obama reassured markets on Wednesday when he said he hoped to close a deal in four weeks.

By the middle of the reporting period, prices for U.S. Treasuries were up on uncertainty over the likelihood of a budget deal, with the 10-year benchmark yield at 1.6677 percent. Demand for the safe-haven bond has increased since then, with the yield touching 1.6181 percent in intraday trading Friday.

Demand for other risk assets rose over the week, with emerging market stock funds grabbing $3.01 billion in new cash - the most in 10 weeks, according to EPFR Global - and European stock funds attracting $229 million.

“Investors have observed the positive stock market reaction following negative fiscal cliff rhetoric out of Washington, and they’ve taken that opportunity to jump into emerging market stocks,” said Tim Ghriskey, chief investment officer of Solaris Group.

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