The Determinants of Flows into Retail Bond Funds

Abstract

Unlike equity fund investors, bond fund investors do not flock into funds with the highest recent raw returns. Instead, they pay more attention to risk-adjusted performance. In addition, bond fund investors, municipal bond fund and government security fund investors in particular, appear to be very sensitive to expenses, such as operating expenses and sales loads. Due to the high volatility of fund returns, high yield bond fund investors do not chase absolute performance and are most sensitive to risks. Investors are more likely to treat investments in government security funds, Ginnie Mae funds, and high quality bond funds as swing components in their total asset mix, and increase their investments in these funds when they flee a prolonged bear equity market.