Tags: bonds

Investors Turning to Bonds for Security

Monday, 20 Jul 2009 09:41 AM

By Dan Weil

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Apparently investors still are spooked by stocks, despite the 36 percent rally since early March. Instead, they’re turning to bonds.

Fixed-income mutual funds drew more money than stock funds for the seventh straight quarter and registered their highest sales in at least 11 years, according to Morningstar, as cited by Bloomberg.

Bonds funds enjoyed a net take of $81.2 billion in the second quarter, almost five times the $16.4 billion for stock funds, data compiled by the Chicago-based research firm show.

Bonds gained in popularity after Treasuries proved to be one of the strongest investments during the financial crisis last year.

“It will take a while before people fully embrace equities again,” Pamela Hess, director of retirement research at Hewitt Associates, told Bloomberg. “You can still feel the hesitation.”

The Standard & Poor’s 500 Index is still down a whopping 42 percent from its October 2007 record high.

Of course with Treasury yields now plunging and many experts expecting interest rates to rise, this might not be the best time to jump into bonds.

“The retail mutual-fund investor is the worst market-timer known to mankind,” Michael Mullaney, a money manager at Fiduciary Trust, told Bloomberg.

Some experts are bearish on the bond market, especially government bonds.

“Avoid Treasurys, that’s my advice,” Donald Quigley, co-manager of Artio Total Return Bond fund, told The Wall Street Journal.

He has shrunk the fund’s Treasury exposure to 4.7 percent of assets, from 17 percent two years ago.

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