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Investors Missed Post-crisis Rally Chasing Past Returns

Because they preferred fixed income over equities from 2009 to 2012, many investors missed out on the best returns of the bull market

Tim Strauts: In today’s chart we are going to examine investor behaviour by looking at where people invest their money on an annual basis. The chart shows worldwide fund flows into mutual funds and ETFs by asset class. Historically, the best predictor of future flows is recent past performance. Asset classes with good performance over the last year tend to get strong flows in the following year.

Generally speaking this is not the best way to invest. For example, in 2009 after the financial crisis and at the beginning of a strong bull market in stocks the largest flowing category was fixed income. Actually, fixed income received the highest flows from 2009 to 2012. The traumatic experience of the financial crisis scared investors out of investing in U.S. equities all the way until 2013. By waiting so long to invest the average investor missed out on the best returns of the bull market.