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Will Bond Funds Bring a Surprise?

Almost always, when people are very angry at the mutual fund industry, it's because of bond funds.

Bad Thoughts
Almost always, when people are very angry at the mutual fund industry, it's because of bond funds.

Stock funds rarely deliver unhappy surprises. By now, people have a pretty good sense of how buckets of stocks behave. In the past quarter-century, U.S.-stock fund investors have been disappointed only three times. In 1987, they were caught out by the speed of the market's plunge (22% in a single day!); in 2000-02, by the depth of technology stocks' dive; and in 2008, by pretty much everything. Following all three occasions, redemptions ensued. Even then, though, most investors were disappointed in the asset class rather than in the funds per se. They realized that the funds had only gone where the asset class had led them.

Bond funds are a different matter, as they do not behave so predictably.

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About Author

John Rekenthaler, CFA  John Rekenthaler has been researching the fund industry since 1988. He is now a columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.

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