In the worst days of the financial crisis last year, mutual fund investors took money out of funds that carried any risk, including stocks and corporate bonds.
But now that stability has returned, investors are parking their money in more risky investments, such as emerging markets, commodities and junk bonds, The Wall Street Journal reported.
Those three sectors of mutual funds all place among the top 10 sellers so far this year.
But investors may be going too far in their quest for high returns, setting themselves up for major losses down the road.
With stock and bond markets recovering, investors are trying to recoup their losses from last year and ride the tide of booming markets.
“Some have said, ‘Well, if we’re going back in, let’s take a real risk,’” Iain Clark, chief investment officer of Henderson Global Investors, told The Wall Street Journal.
In the first five months of 2009, investors put a net $4.9 billion into diversified emerging-market mutual funds, according to research firm Morningstar.
But experts warn of risk in this strategy.
“It’s been the lower-quality companies that have done better,” Simon Hallett, co-manager of the Harding Loevner Emerging Markets fund, told The Journal. “Emerging markets have probably overshot in the short term.”
Other experts warn of danger, too.
“The risk you run, going from fear to greed so quickly, is that you’ll run into a huge whipsaw,” Mike Scarborough, president of Scarborough Capital Management, told The New York Times.
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