It is well known that investors' attitude toward risk changed immensely during and after the bear market of 2007-2008. The shift toward safer fixed income choices and a reduced reliance on equity funds is seen in the flows data. For 2008 investors withdrew nearly $73 billion net from equity funds (after a net purchase of $179 billion the year before), and added $64 billion to taxable and municipal debt funds. In 2009, equities attracted a paltry $5 billion in net flows, while the pair of bond fund groups took in a whopping $465 billion net (all flows figures include exchange-traded funds). Equity markets might yet string together two years of double-digit gains, but equity funds are still attracting less than $1 for every $2 going into bond funds.

This preference for bond funds makes me wonder: Did investors do a good job picking funds? A database of investor trades would be immeasurably helpful to answer that question; but, that's not something we track at Lipper. What we can see are flows and performance. To start with, let's exclude money market funds. We'll construct our analysis in quadrant form, where fund flows during 2009 (positive/negative) are along the bottom (x) axis and performance in 2010 (above/below average) is along the side (y) axis. For our purposes, when investors sold a fund that achieved above-average performance the following year, they made a mistake. Likewise, when 2009 net flows were positive and the fund was an above-average performer for 2010, investors collectively made a good decision.

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