LONDON (Reuters) - Investors jumped back into riskier assets this week as a more dovish tone from the Fed rekindled enthusiasm for stocks, which benefit from a higher relative yield to bonds.
Money flowed out of bonds for the 17th straight week, while equities drew inflows for the fifth straight week, global flow data from Bank of America (NYSE:BAC) Merrill-Lynch showed.
But the appetite for risk was not universal, with strategists at the bank highlighting market participants didn't see eye to eye on the potential for markets to push further from current record highs.
"Big divergence recent weeks between hedge fund positioning, market breadth and technicals (all becoming more bullish) versus flows and long-only positioning (turning bearish)," strategists at the bank wrote.
They had last week predicted stocks could be headed for a big "Humpty Dumpty" fall in the autumn.
Investment managers wary of missing a potential further leg-up in stocks have stayed on the reflation train, however.
They've added 20 percent or more this year to emerging markets, financials and Euro zone equity ETFs, and sold quality, utilities and dividend funds, BAML's number-crunchers found.
Breaking down the fixed income moves, high-yield bond funds saw the biggest outflows in 17 weeks as investors unwound bets that yields would rise fast on the back of monetary policy tightening across the developed world.
Investment-grade bonds were on course for a record year of inflows as investors seeking safety piled into them for the 29th straight week, with $5.2 billion flowing into the funds.
Emerging market debt remained a popular alternative for investors hunting for yield. Funds tracking emerging market debt saw their 24th straight week of inflows.
In equities a rotation away from "value"-style stocks and into "growth" continued as U.S. growth funds enjoyed their biggest week of inflows on record.
European equities, which have enjoyed renewed prominence this year as a cheaper alternative to U.S. equities, saw inflows resuming after their first outflows in 15 weeks last week.
U.S. stocks had their fourth straight week of outflows.
The sector mix revealed investors' renewed trust in the strength of cyclical stocks, while they ditched defensive sectors like real estate, consumer goods and utilities which benefit when interest rates rise.
