Ed Hipp, president of Centura Banks' retail brokerage, has gotten used to being ignored.
For the past couple of years, he and his sales staff have warned clients that the long bull market in equities might soon end. But those customers have continued to snap up stock funds and shun bond funds-and the market has risen all the while.
"I feel like I'm the little boy who cried wolf," said Mr. Hipp, whose stock funds have outsold bond funds by about two-to-one during the stock market run-up.
The same scenario is being played out across the mutual fund industry.
Fund company executives and bank brokerage chiefs say they are still preaching caution. Indeed, the need to manage investor expectations was emphasized repeatedly by panelists and speakers at the annual conference last month of the Investment Company Institute, the mutual fund industry trade group.
But investors continue to brush bonds aside in favor of stocks.
Net new cash flow into equity funds was estimated at $26.5 billion for April, up 14% from the previous month, according to the Washington-based trade group.
Net new cash flow into bond funds, meanwhile, was $4.4 billion, down 32% from the previous month.
"We're still seeing a large balance of interest in equity funds," said Ed Diamond, president of Dime Community Bancorp's broker-dealer in New York. "I don't see any interest in shifting back to bond funds."
That's despite the fact that the brokerage has shifted its recommended investment mix in the last month to 25% bonds and 75% equity, from about 15% bonds and 85% equity, he said.
The nation's mutual funds, more than 7,000 of them, hold $5 trillion; their assets increased by $62 billion in April, according to the institute.
Of that total, equity funds accounted for $2.8 trillion, compared with $763.4 billion of bond funds.
Stephen Gibson, president of Colonial Group Inc., Boston, said many fund companies feel embarrassed after having sounded the alarm in the past.
"Now they look back kind of sheepishly," he said.
Colonial still advises intermediaries to tell clients of the need to diversify between stock and bond funds, he added.
Thomas Littauer, president of Kemper Funds, Chicago, said his company does the same.
"We clearly drive the message home to brokers and individuals about diversification," he said.
But experience has tempered that effort across the industry.
PNC Bank Corp.'s brokerage sent cautionary mailers out a year and a half ago but has learned its lesson, said Mike Mortensen, president of the brokerage.
"We can't time our warnings any more than we can time whether you should be in stocks or bonds any given moment," he said.
PNC's sales reps emphasize an asset-allocation program for investors, and the approach seems to be working. In the first quarter, 31% of investment at the brokerage went into bond funds, up from 23% the year before, Mr. Mortensen said.
Sanwa Bank, Los Angeles, is preaching "reposition, rebalance, and asset allocation," said Michael Boulden, vice president of its broker-dealer.
The bank is telling people that "we've had tremendous gains over the last couple of years," Mr. Boulden said. "Now might be a good time to reposition part of those gains."
"Unfortunately, we are still seeing more stock funds sold," he said.
Brokers get the same commission whether they sell stock or bond funds, so there is no cash incentive for them push one over the other.
But many brokerage executives say young sales reps who have known nothing but a rising market must constantly be reminded that stocks are not a one-way street.
"You worry - especially those of us who have been in this business for 20 years like me - that there will be a downturn," said Mr. Hipp.
He said Centura, based in Charlotte, N.C., periodically cautions investors by letter about market risk.
It is human nature for investors to ignore cautionary advice since the stock market has rewarded them so richly for three years, said Mr. Diamond of Dime's broker-dealer.
"I think the momentum is continuing long after the trend has changed," he said.
Mr. Mortensen of PNC agreed.
"You do see the herd theory going on right now," he said. "People do tend to buy on past performance, which means they may be buying things when prices are a little bit high."
Still, he said, investors become deaf to incessant warnings, especially in a rising market.
"You can't constantly be drilling a negative message," Mr. Mortensen said.
In addition, economic indicators suggest that the bull market may have a way to run. He pointed to stronger-than-expected gross domestic product growth in the first quarter and other strong economic indicators.
Neal Johnston, product manager for mutual funds at Norwest Corp., Minneapolis, said the company's stock fund sales are partly the result of asset-allocation programs that are configured to invest in stock funds when the price is right.
A mutual fund wrap account the company plans to roll out by Sept. 1 could steer more money into bond funds, Mr. Johnston said, because it will be coupled with the asset-allocation service.
The asset-allocation approach will encourage clients to diversify their investments rather than simply buying products with cachet at a given time- such as large-capitalization stock funds.
