Here's a paradox: The bond market has squeezed out only a 3 percent return so far this year, while U.S. stocks are up more than 13 percent. But in August, more than 90 percent of the $30 billion that flowed into all mutual funds and exchange-traded funds went into taxable-bond funds, according to research firm Morningstar.
One issue in play here: Many investors are rebalancing their portfolios after the recent runup in equities. U.S. stocks have more than tripled since the financial crisis. So an investor who had 60 percent in stocks and 40 percent in bonds then would have more than 75 percent in stocks now.
But this has been happening at a time when bonds have been seriously underperforming. Over the past 12 months, long-term Treasury bonds have lost more than 4 percent, and the overall bond market has delivered a gain of less than 1 percent, counting interest payments.
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