90% of mutual fund flows this year have gone to bond funds:

BOSTON (MarketWatch) — Mutual-fund investors still smarting from the beating they took in stocks last year are continuing to pile into the relative safety of bond funds, causing many to miss out on the market’s roughly 50% bounce from the March low.

Through August, about $226.4 billion flowed into U.S. open-end funds in 2009, Morningstar Inc. said in research released Tuesday.

“Fund firms are close to making up the ground lost in the second half of 2008, when investors pulled $251 billion out of mutual funds,” the investment researcher said.

However, of the year-to-date inflow, about $209.1 billion, or more than 90%, has gone into taxable-bond and municipal-bond funds.

The trend held up in August, when investors put $54 billion into all types of mutual funds.

“That represents the largest inflow since February 2007. While that’s certainly a positive sign for fund firms, it doesn’t necessarily signal renewed enthusiasm for equities,” Morningstar said.

“As has been the case throughout much of the year, the vast majority of inflows have been to fixed-income funds,” it added. “Approximately 60% of August’s flows went to taxable-bond funds, and municipal-bond funds made up another 20%.”

I don’t know when these investors will discover the risk they are taking by piling into bonds with yields at generational lows, but discover it they will.