US Equity Funds Attract $20.6 Billion as AI Hype Outweighs Yield Concerns

Investors directed a net $20.6 billion into U.S. equity funds for the week ending September 30, marking the second straight week of positive flows. The inflows, reported by LSEG Lipper, occurred despite 10-year Treasury yields hitting 24-year highs, as enthusiasm for artificial intelligence and signs of cooling inflation bolstered market sentiment.

Large-Caps Lead Equity Inflows

The bulk of the capital was allocated to U.S. large-cap equity funds, which attracted $19.33 billion, their second-largest weekly inflow in the past quarter. The sustained demand was partly fueled by positive corporate outlooks in the AI space, such as Micron Technology's strong revenue forecast, which helped lift the Nasdaq Composite to record highs.

Other fund categories saw more mixed results:

• Multi-cap funds: Attracted $1.01 billion in net purchases.
• Small-cap funds: Drew a modest $223 million.
• Mid-cap funds: Recorded net outflows of $329 million.

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Adding to investor confidence, a Commerce Department report showed that U.S. inflation in August rose less than expected, easing pressure on the Federal Reserve to implement another interest rate hike in October.

Sector Funds Lag as Bonds See Demand

While broad market funds saw strong interest, sectoral equity funds experienced net outflows of $4.1 billion. The technology sector led the withdrawals with net sales of $3.79 billion, followed by industrials, which saw outflows of $738 million, suggesting investors may be taking profits in specific areas while buying into the wider market.

In the fixed-income market, U.S. bond funds posted net inflows of $6.45 billion, the largest in three weeks. Government and Treasury funds were particularly popular, drawing $4.3 billion. In a sign of a potential risk-on shift, money market funds reported significant outflows of $41.36 billion, their third week of net redemptions in the last four.