Mutual Fund Trends

By Dian Vujovich

Although the stock market has been good to equity funds this year, look at investor behavior and you’ll find fund investors moving their money either out the door or out of equity funds and into fixed-income ones. Go figure.

According to Morningstar, the largest fund families experiencing the biggest changes include:

-American Funds. This year hasn’t been good to this Los Angeles-based fund family as it has seen more money flow out than in. Even their fixed-income funds haven’t received much investor interest.

-Fidelity. From March through October, $1.8 billion has left funds from this huge Boston-based family. Funds seeing the most dollars fly out include Fidelity Magellan, Fidelity Equity Income and the Fidelity Spartan 500 Index Fund.

Investors didn’t blow off this giant family off although, though. Their bond funds have attracted new assets.

– Hanging in there. Three of the largest funds still attracting assets include PIMCO Total Return, Vanguard Total Bond Market Index, and Vanguard Short-Term Investment-Grade bond fund.

What strikes me as curious about this trend from equities into bond funds is, what’s an investor thinking when they decide to invest into a bond fund when interest rates are at historic lows? There are other fixed-income choices. None, like bond funds, are yielding much. But have they forgotten that there are fees to pay each year for the management of their bond portfolios, that those fees take a bite out of the fund’s yield and at some point in time rates are going to rise and when that happens the value of their bond fund portfolios will fall?

Then again, maybe they never should have been invested in equities in the first place?

Somebody once said, “Aging isn’t for sissies.” Well, neither is investing in the stock market.

More details from Morningstar investor trends for October story at http://tinyurl.com/yaqmxc5 .