Bond mutual funds attracted more money than their equity counterparts in 30 straight months through June, the longest stretch in more than 23 years, according to the Investment Company Institute.
Preliminary data show the trend in the $10.5 trillion mutual fund industry continued in July, matching the streak posted by bonds from 1984 through 1987.
Bond funds attracted $559 billion industrywide in the 30 months through June, according to ICI. Investors pulled $209.4 billion from domestic equity funds and $24.4 billion from funds that buy non-U.S. stocks.
Stocks fell 26% including reinvested dividends during the period, as tracked by the S&P 500. Bonds returned 16%, based on Bank of America Merrill Lynch index data.
The speed and depth of the market’s decline has rattled investors in a way past sell-offs didn’t and has conditioned them to retreat from stocks at the first hint of trouble, said Jim Jessee, president of the U.S. fund business for MFS Investment Management.
In the week following May 6, when the Dow Jones industrial average briefly lost almost 1,000 points and then recovered, investors pulled $12.3 billion from stock mutual funds, ICI data show. In April, equity funds had deposits of $13.2 billion.
“People have developed a hair-trigger mentality,” said Mr. Jessee in a telephone interview. “Their feeling is: ‘I am not going to be too slow the next time.’ ”
The S&P 500 has fallen 12% from its high for the year on April 23 amid signs the economic recovery is slowing. Investor pessimism deepened after the Federal Reserve said Aug. 10 that growth probably will be “more modest.” The central bank said it will maintain its holdings of securities to stop money from draining out of the financial system, its first move to bolster the economy in more than a year.