Investors shrug off rate fears, pour cash into equity funds

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NEW YORK (Reuters) – Investors were undeterred by fears of rising interest rates, with U.S.-based equity funds attracting $3.5 billion of net cash in the week ended April 25, the third consecutive week of inflows, Lipper data showed on Thursday.

The inflows were boosted by strong earnings results and solid economic news.

U.S.-based taxable bond funds also attracted inflows, with government-Treasury funds adding more than $1 billion for the week ended Wednesday, according to Lipper data. Overall, U.S.-based taxable bond funds posted $921 million for the week, their seventh straight week of inflows, with U.S.-based high-yield “junk” bond funds recording $2.5 billion in outflows.

“I guess investors shrugged off the news about the benchmark 10-year Treasury yield closing above 3 percent for the first time since December 27, 2013, and focused on the economics and strong first-quarter earnings season so far,” said Tom Roseen, head of research services at Thomson Reuters Lipper.

So far, 45 percent of S&P 500 companies have reported first-quarter earnings, with 79.7 percent beating consensus estimates. Analysts see 23.1 percent earnings growth for the quarter, based on a blend of actual and estimated results.

But there could be a lag in terms of how investors will respond to the 10-year yield, a benchmark for global borrowing costs, crossing the critical 3 percent threshold, Roseen added.

“Although I am thinking that at least from a funds perspective – excluding ETF (exchange-traded fund) flows – that decision was made a week or two ago,” Roseen said of the inflows to bond and equity funds. “The average equity fund lost 2.42 percent for the flows week.”

Roseen said despite the flows into fixed-income funds, investors appeared to be mildly concerned over inflation.

Lipper’s Inflation Protected Bond Funds classification posted net inflows for the third consecutive week, while bank loan funds took in money for the 10th consecutive week, indicating some concern for rising rates. “So it wasn’t like investors totally ignored the rising rates this week,” he said, noting inflation funds took in $112 million and bank loan funds attracted $264 million.

Non-U.S. funds also found favor during the week. U.S.-based emerging market equity funds attracted inflows of $975 million for the week ended April 25, extending their weekly inflow streak for all of 2018, Lipper data showed. Non-domestic equity funds drew $3.75 billion of inflows, their fourth consecutive week of new money, Lipper said.

Reporting by Jennifer Ablan; Editing by Lisa Shumaker and Dan Grebler

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