Investors have rushed to put money into money market funds, as they continue to back the story that inflation is going to grow under US President-elect Donald Trump.
Fund flows into money market funds in the week ending 4 January grew to $31.7bn (£25.7bn), up from $16bn in the week including the Christmas holiday, according to data provider EPFR.
Money market funds offer investors lower risk, but also a higher exposure to cash, which so-called “Trumpflation” would make more attractive.
Trump’s campaign promises have been taken by investors worldwide as a de facto fiscal stimulus package, running up a large budget deficit which will boost inflation.
US equity funds also finished the year strongly, posting the biggest quarterly flows of the year. This movement reflects US stock markets which have reached repeated record highs since Trump’s election – although there are signs they may be slowing, at least until he is inaugurated.
The moves into equities have been allied with moves out of bond funds, which recorded their biggest quarterly outflow of 2016 as the threat of inflation makes coupon payments less attractive.
Meanwhile investors are betting that Trump’s deregulatory leanings – and appointments at the more laissez faire end of the scale – will boost the financial sector. Financial sector funds experienced a record quarterly inflow in the last three months of 2016, while over $1bn was moved into bank loan funds – which track loans to companies – for the fifth week in a row.
Trump’s campaign promises include massive tax cuts for businesses as well as removing regulation such as the Dodd-Frank Act on “too big to fail” banks.
The data also show that moves out of emerging markets – which could suffer under Trump-inspired protectionism or if the Federal Reserve raises interest rates to combat inflation – have slowed slightly. More money flowed into emerging markets bond funds than at any point since the start of October.