US investors bet US$18.1b on more Fed easy money

Inflows into stock funds biggest since January as central bank forecast to keep bond-buying pace

PUBLISHED : Saturday, 21 September, 2013, 12:00am
UPDATED : Saturday, 21 September, 2013, 2:29am

Investors in the United States poured US$18.1 billion into stock funds in the week to Wednesday as global markets rallied on expectations the Federal Reserve would maintain its easy-money policies, data from Thomson Reuters' Lipper service showed.

The inflows into stock funds were the biggest since early January. Investors have committed nearly US$31 billion to stock funds in the latest two weeks, the strongest two-week run for the funds since Lipper began tracking them in 1992.

"The activity this week all reflected more of a risk-on attitude," said Jeff Tjornehoj, the head of Americas research at Lipper. "We had a pretty good tone in equity markets."

US shares surged to record highs on Wednesday, the last day of Lipper's reporting period, after the Fed said it would maintain the pace of its US$85 billion in monthly bond purchases and await more evidence of solid economic growth.

The Standard & Poor's 500 Index and the Dow Jones Industrial Average hit record highs that day. Global equity markets also gained after former treasury secretary Lawrence Summers withdrew from consideration to be the next Fed chairman.

The MSCI world equity index rose 1.6 per cent over the reporting period, while the S&P 500 rose 2.2 per cent for the week.

Summers, a former top aide to President Barack Obama, was considered to be the front runner to replace Fed chairman Ben Bernanke, whose second term expires in January next year. A potential Summers nomination was viewed as less favourable for the continuation of stimulus measures, which have helped boost the S&P 500 more than 20 per cent this year.

Stock exchange-traded funds attracted US$15.5 billion of the inflows into stock funds in the latest week, the biggest inflows into the funds since December 2008. The SPDR S&P 500 ETF Trust, which tracks the S&P 500, pulled in US$6 billion.

ETFs are generally believed to represent the investment behaviour of institutional investors, while mutual funds are thought to represent the retail investor.

Funds that hold emerging market stocks pulled in US$2.14 billion in new cash over the week, down modestly from the previous week's inflows but still showing strong demand.

Tjornehoj said investors sought emerging market stock funds, which benefit from the Fed's stimulus, on sentiment during the week that the Fed would maintain its easy-money policies.

Japanese stock funds also attracted small inflows of US$215 million, their second straight week of demand from investors. Japan's Nikkei average rose 0.6 per cent over the period.

Inflows into bond funds climbed to US$1.4 billion, the biggest amount in eight weeks.