Debunking Flock to Bonds

As the U.S. Federal Reserve prepares to meet today, we consider how the Fed's ultra-low rate policy has impacted individual investor behavior. Many have remarked that flows into fixed income mutual funds have been robust in recent years, even after the panic of 2008-09 subsided. This may lead one to conclude that fear over another financial crisis has trumped the Fed's efforts have been in vain. After all, one of the ways the Fed's rate policy is supposed to work is to push investors out of low-risk securities and into securities that help economic growth, like corporate bonds and stocks. But a deeper look into the data debunks this flock-to-bonds myth and suggests that the Fed's policies, taken as a whole, are having some impact.

It is true that mutual fund flows have consistently favored fixed income funds over the last few years. The chart below shows bond vs. equity mutual fund assets as a percentage of total mutual fund assets. We can see a big increase in fixed income allocation during 2008, but even after that point there has been a fairly persistent increase in bond weighting....639 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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