Investors' appetite for risk was on display this week as U.S.-based equity mutual funds attracted $1.45 billion of net inflows, their third straight week of inflows, and U.S.-based equity exchange-traded funds attracted $10.6 billion, according to Lipper data on Thursday.
Moving in sympathy with equities, U.S.-based high-yield junk bond funds attracted $2.65 billion in the week ended Wednesday, their second straight week of inflows. And U.S.-based investment-grade corporate bond funds attracted $4.16 billion in the week ended Wednesday, extending their weekly inflow streak since September, Lipper said.
Major indexes have hit a series of record highs since the start of the year and the S&P 500 is up 3.5 percent since Dec. 31.
"Obviously a strong week for funds, inflows just about across the board," said Pat Keon, senior research analyst at Thomson Reuters Lipper.
"Some of the optimism from the markets seems to have trickled down to fund flows this week. The inflows into high yield funds, equity funds as well as both emerging market equity and debt funds can all be viewed as risk-on strategies."
U.S.-based emerging market debt funds attracted $1.5 billion of new cash in the week ended Wednesday, their eighth straight week of inflows, Lipper said. U.S.-based emerging market equity funds posted inflows of $3.85 billion in the week ended Wednesday, their third consecutive week of net new cash, Lipper said.
Keon said doubts about the aggressiveness of rate hikes by the Federal Reserve this year might be enticing investors to add exposure into fixed-income funds.
"Investment grade corporate bond funds are coming off a strong year, but I think the group benefited from uncertainty from the Fed about the three projected interest rate hikes for 2018," he said.
"The Federal Open Market Committee minutes - which were released last week - indicated that the Fed was divided about the three forecasted increases for 2018."
One camp believed that three more rate increases was too aggressive and might prevent inflation from reaching and sustaining the Fed’s target rate, he said.
The other side theorized that the three rate hikes were not enough, since the Fed’s rate-hike program had not yet caused financial conditions to deteriorate and that leaving interest rates at an artificially low level would increase the risk of financial instability, he said.
Investors yanked $2.2 billion from money market funds, their second straight week of cash outflows, Lipper said.