Equities

Stock funds and ETFs saw record inflows in latest week

In an about-face, investors are favoring stocks over bonds this year.

Investors poured more money into U.S. stocks in the latest week than at any time since Bank of America Merrill Lynch started keeping records in 2002.

A record $43.4 billion flooded into U.S. stocks in the week ended Wednesday, bringing the total inflows this year to $151.7 billion, according to Bank of America Merrill Lynch research. “At its current pace, it will be a huge record,” said Jared Woodard, investment strategist for the company.

The massive weekly flow is particularly notable because it suggests that investors are embracing stocks at last, even though the stock market remains about 1% below its all-time high following the correction in February.

“This is the first time since 2013 that equity flows are outpacing bonds for the year,” Mr. Woodard said. In 2013, The Standard & Poor’s 500 stock index gained 32.39%, including reinvested dividends.

Growth funds saw a record $5.8 billion inflow in the week ended Wednesday, while U.S. small-cap funds threw out the welcome mat for $5.4 billion. “We’re also seeing substantial flows into actively managed funds this year,” Mr. Woodard said.

Bonds, the overwhelming favorite of investors for the past five years, seem to have fallen from favor as interest rates have risen. The Vanguard Total Bond Index fund (VBMFX) has fallen 1.91% this year. High-yield bonds have seen net outflows for the past nine weeks, the longest streak since 2007.

All other things being equal, big inflows to stock funds should translate into higher stock prices. Nevertheless, for contrarians, the shift in flows is worrisome for the long term, especially since the stock market faces several headwinds this year, including high prices, relative to earnings, and rising interest rates.

“There are quite a few things to be concerned about,” Mr. Woodard said. “Will earnings grow at the same pace they have been? Is the dollar going to remain weak? Longer term, there are reasons to be skeptical about a huge upside here.”