Every once in a while, one of my favorite investing resources, Morningstar, compiles a list of the 10 hottest-selling funds of a certain period. I like these lists because it gives a glimpse into the mind of the “average” investor and sometimes makes it fairly obvious what’s hot and what’s not. In the late 90’s, you would have expected the hottest-selling funds to be heavily tech-focused. During the last bull market, it was small-caps and foreign stocks. For a contrarian, knowing what the crowd is doing is often helpful in making your own investment decisions. So what’s hot now?
Conservative Funds Are In
With the recent market volatility, it’s not surprising the list is dominated by funds with names like Capital Income Builder, Fundamental Investors, or Growth And Income. There is a Global Allocation fund, a large-cap value International fund, and even two bond funds: Pimco Total Return and Vanguard Total Bond Market Index. Without fail, all the equity funds focus on high-quality, large-capitalization stocks and the bond funds on highly-rated debt securities. Does this mean investors have finally learned their lesson and have stopped chasing returns? Not a chance. More likely, they are just temporarily flocking to what they think will give them the best down-side protection while still staying in the market. Still, long-term buyers of most of these funds will likely do quite well over the long term if they don’t jump ship at the first sign of a recovery.
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