Inflows into stock funds in the week ended March 6 trounced the prior week's cash gains of $1.2 billion. Appetite for U.S. stocks largely accounted for the inflows, as $4.95 billion flowed into funds that hold the stocks, reversing the prior week's redemptions of $411 million.
"A stock market rally attracts new money, and we believe the market conditions remain favorable," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
The inflows came on the heels of the Dow's record closing high of 14,253.77 points on March 5, surpassed a day later. Loose policies of monetary easing from the U.S. Federal Reserve and signs of growth in the U.S. economy contributed to the rise.
The MSCI world equity index <.MIWD00000PUS>, meanwhile, rose 1.6 percent over the weekly reporting period.
The inflows into U.S. stock funds were largely opportunistic bets on exchange-traded funds, EPFR Global said.
So far this year, investors worldwide have poured more than $21 billion into funds that hold U.S. stocks, after redeeming $71.8 billion from the funds last year as they favored stable returns in bonds.
Appetite for equities serves as a barometer of investor confidence and how people feel about the economy.
Funds that hold world stocks saw another week of high demand with inflows of $1.6 billion. The funds took in more than $2 billion in new cash the prior week.
The big flows into U.S. stocks overshadowed demand for emerging market stocks, as just $102 million flowed into emerging market stock funds. That amount, albeit small, is an improvement from outflows of $1.07 billion the prior week.
Investors withdrew $290 million from European stock funds, despite expectations that the European Central Bank would maintain its loose monetary policy at a meeting.
Concerns remained, however, that political instability in Italy could reignite the euro zone debt crisis.
The benchmark S&P 500 <.SPX> rose 1.7 percent over the reporting period as investors shrugged off risks to the U.S. economy stemming from $85 billion in federal spending cuts, as well as political turmoil in Italy.
The Federal Reserve's commitment to continue its monetary easing fueled the rally, along with positive U.S. economic data such as a drop in new U.S. claims for jobless benefits, growth in U.S. factory activity, and a rise in consumer sentiment in February.
Investors also sought profits in high-yield "junk" bond funds, to which they gave $1.9 billion, the most since mid-September. Many view high-yield bonds as a risk asset, and yet a safer alternative to stocks.
"It's a reach for yield," said Colleen Denzler, global head of fixed income strategy at Janus Capital Group, which had about $157 billion in assets at the end of last year.
"Until there's a liquidity shock, or a default shock, or a credit shock, that trend will continue," Denzler said.
Bond funds overall reaped inflows of $4.5 billion in the latest week, slightly below cash gains of $4.68 billion the previous week. Funds that hold U.S. bonds took in $3.86 billion of the new money.
Denzler of Janus Capital said that despite rallies in the stock market, many investors are still unwilling to take risks in stocks.
Investors "like stocks, they've been going into stocks, but they remember what happened in 2008, and they're scared," she said.
Funds that hold emerging market bonds attracted just $409 million in new money, a weak turnout after attracting inflows of more than $1 billion in the first six weeks of the year. The inflows are the least since last July, EPFR Global said.
The move out of European stocks also applied to the region's bond funds, which suffered redemptions of $974 million over the week
(Reporting by Sam Forgione; Editing by David Gregorio)
By Sam Forgione