Investors' enthusiasm for equities and corporate bonds showed little sign of waning during the latest week, with funds in both categories scooping up more money, data from the Investment Company Institute showed on Wednesday.
Stock mutual funds and exchange-traded funds netted $1.2 billion in the week through Dec. 21, while taxable bond funds added $1.7 billion, the trade group said. Municipal bond funds, by contrast, posted $3.9 billion in withdrawals.
"Investors have been embracing riskier assets and moving away from safer municipal bonds and Treasuries, as the economy strengthens, rates move higher and confidence in a stronger 2017," said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.
He said that confidence is built on expectations of lower U.S. corporate taxes and fewer regulations following an election that gave Republicans who support those policies control of the presidency and the U.S. Congress, starting next month.
The Russell 2000 has gained more than 14 percent since the November election.
"The U.S. stock market has climbed higher on lofty expectations of a new presidency, but we think greater caution is warranted," Rosenbluth said.
The ICI data also showed investors continuing to favor ETFs, which typically track the market, over generally higher-cost mutual funds managed by stock and bond-picking managers.
The mutual funds posted $11.8 billion in withdrawals in the latest week, while ETF inflows were $7.9 billion.
"Investors are also embracing the lower-cost ETF alternatives, regardless of the asset class," said Rosenbluth. "With lower expected returns for bonds in 2017, costs will matter more."
Mutual funds tend to report weaker sales in December. Investors sell the funds during the month to cut their tax bills, lock in earnings for the year or move cash to assets that performed better ahead of disclosing their investments at the end of the year.
ETFs, where investors park some of that cash temporarily, tend to do well at the end of the year.
(Reporting by Trevor Hunnicutt; Editing by Meredith Mazzilli)