They sat on the sidelines when the market came rocketing back in 2009. They steered clear for much of 2010, 2011 and 2012. And after peeking their heads back up momentarily in 2013, they've once again run for cover.
Through thick and thin, good times and bad, mutual fund investors have largely sworn off domestic stock funds in the aftermath of the downturn that started in late 2007 and lasted until March 2009.
[Read: 5 Lessons From the Last Stock Crash.]
Even as the Dow Jones industrial average climbed to new highs, fund investors have continued to flock to bond products. According to the Investment Company Institute, in the week ending May 1 - just six days before the Dow crossed the 15,000 mark for the first time ever - investors yanked more than $4 billion out of domestic stock funds. The week before that also saw outflows.
Meanwhile, bond funds have soaked up money over the past several years. Since 2009, there have been only four months when bond funds experienced net outflows, according to the ICI. Undeterred by the looming (and near certain) prospect of higher interest rates in the coming years, fund investors have consistently chosen bonds over stocks. They've done so even as stocks have greatly outperformed bonds in the aftermath of the downturn. And at least in the short term, their bond preference doesn't appear likely to change.
So what will it take to turn the tide? Jeffrey Kleintop, chief market strategist at LPL Financial, thinks it will take more than a bull market for stocks. Instead, he suggests that until bond funds start losing money, investors will prefer their safety over the vicissitudes of the stock market. "I think it probably [would] take a consistent period of losses for bonds," he says. "They don't need to be dramatic; they just need to be consistent."
Bond returns, while not in the red this year, have been largely flat. For instance, the Barclays Capital U.S. Aggregate Bond Index was up just 0.22 percent year to date as of Friday. "There hasn't really been much of a correlation between [fund flows] and what the market is doing," Kleintop says. "Clearly, for a long period of time, [investors have] been favoring bonds, looking for the historical returns and the safety."
Another piece of the equation is that fund investors have been skeptical of the market's march upwards over the course of 2013. "Investors are looking twice at this rally ... and just aren't as excited about equities ... When you get off to a good start, people start to wonder how long the rally will go on," says Jeff Tjornehoj, Lipper's head of Americas research. "It's not that we have to have a correction ... but people start to question how long can this go on."
[Read: Why the Market Is Still a Good Deal.]
Meanwhile, the persistence of low interest rates has given bond investors some short-term peace of mind. "The change in interest rates this year has been very moderate, and that's given people greater confidence in the bond market," Tjornehoj says. "And that, of course, draws attention away from equities."