Emerging market equity funds recorded a year-to-date high in weekly net inflows indicating that investors are slowly taking more risk.

EPFR Global-tracked emerging market equity funds took in the most money since mid-December during the week ending March 25. These funds absorbed $2.3 billion in net inflows during the week, turning year-to-date net inflows to $2.03 billion. A large part of that came from global emerging market equity funds, which took in $1.9 billion in net inflows during the week. EPFR Global is a Massachusetts-based data provider that tracks more than $10 trillion in assets in traditional and alternative funds worldwide.

The fact that investors are pouring more money into emerging market equity funds means they aren't as hesitant as they were to pay for riskier assets. A flight to quality amid the global financial crisis translated to a flight out of emerging market equities last year, and with good reason. Emerging markets -- despite vast improvements in economic outlook and the quality of listed companies -- are still generally considered higher risk investments. Problems not normally associated with developed markets -- ranging from geopolitical issues, mistreatment of minority shareholders, or even natural disasters -- tend to occur more regularly in many emerging markets.

So far this year, however, emerging markets have been holding up. The MSCI Emerging Markets Index is up 4.3% year-to-date. Over a 12-month period, the index is down 47%.

Latin America Equity Funds had their best week since the second quarter of 2008. Europe, Middle East and Africa (EMEA) equity funds took in fresh money for only the second time in the past 37 weeks. Asia ex-Japan equity funds posted modest inflows for the third straight week.

Renewed optimism about US and Chinese demand for commodities underpinned flows into Latin America and EMEA equity funds, with funds geared to the biggest raw material producers in the respective regions getting the lion's share of the new money. Brazil equity funds took in a net $238 million, their best showing since the fourth week of May, while flows into Russia equity funds hit a 19-month high.

Flows into Asia ex-Japan equity funds were driven by funds with regional rather than country specific mandates. For the second straight week, actively managed China equity funds enjoyed solid inflows that were offset by outflows from exchange-traded funds. India equity funds posted their tenth straight week of outflows, but Korea equity funds snapped their five-week losing run.

"The latest data certainly paints a picture of money leaving essentially passive vehicles such as money market funds and being put to work in funds offering more risk and higher rewards," says Cameron Brandt, Massachusetts-based EPFR Global senior analyst. "Another clue is the lack of movement surrounding the rebalancing of the big US index funds. Last year there was a lot of money chasing the small arbitrage opportunities offered by quarterly rebalancing, but this year there is clearly some appetite for chasing bigger returns again."

Overall, investors committed $2.75 billion in net inflows to non-US equity funds and another $1.51 billion in net inflows to bond funds during the week ending March 25. At the country and regional level there was a marked preference for commodity producers with Brazil, Russia, Australia and Canada equity funds all posting solid inflows.