Confidence in the US market has showed signs of improvement as investors withdrew $9bn (£7.2bn) from safer money market funds and poured $6.7bn (£5.4bn) into domestic ETFs.
Fund flow data from Lipper shows investors preferred passive funds with $7.9bn flowing into ETFs in the first week of trading in 2017 – the second consecutive week equity ETFs witnessed net inflows.
Domestic equity ETFs in particular saw $6.7bn inflows, an increase in assets for the ninth week in a row. Non-domestic equity ETFs also witnessed net inflows this past week attracting $1.2bn, an increase for the second week running.
The SPDR S&P 500 ETF was the most popular attracting $3.1m, followed by the iShares Russell 2000 ETF ($800m) and the Financial Select Sector SPDR ETF ($500m) attracting the largest amounts of net new money of all individual equity ETFs.
PowerShares QQQ Trust 1 bottomed the group with $1bn outflows while the SPDR Gold ETF suffered $355m of redemptions for the week.
Data shows that for the third week in four investors were net redeemers of fund assets withdrawing some $6.3bn in the first week of the year.
However, confidence sparked into mutual funds.
Equity funds and taxable bond funds saw inflows of $2.4bn and $1.2bn respectively, while liquid money market funds and municipal bond funds saw outflows of $9bn and $900m each.
Interestingly, taxable bond funds netted $1.2bn for the first time in four weeks suggesting investors are less worried than the Federal Reserve of a possible rise in inflation that the Trump presidency might install.
Thomson Reuters Lipper head of research services Tom Roseen says: “The holiday-shortened trading week with low market volume kept most investors on the sidelines. However, the late-week release of the Federal Open Market Committee minutes – hinting at a faster pace of rate hikes in the coming months but largely ignored by investors – and strong US automobile sales for November piqued investor interest on the second trading day of 2017.
“At the end of the flows week (4 January) the markets rose to near record levels as investors learned that car sales had come in better than expected for GM and Ford and that the Nikkei 225 index had risen to a 13-month high.”
Architas investment director Adrian Lowcock plays down the outflows in money market funds as the industry is “massive” in the US, but says the trend shows investors and markets are more optimistic and willing to not just invest in cash.
He says: “This trend [of more inflows into mutual funds and ETFs] is in contrast with the pessimism at the beginning of last year. People are getting more confident to invest.
“There is more optimism before Trump gets his office. We’ll have more rates hike in the second half of the year and overall in the world manufacturing data is positive so the outlook is more rosy right now.”