July 14 (Bloomberg) -- Bond mutual funds attracted more money than equity funds for the seventh straight quarter, posting their highest sales in at least 11 years, according to Morningstar Inc.

Bonds funds had net inflows of $81.2 billion in the second quarter, compared with $16.4 billion for stock funds, data compiled by the Chicago-based research firm show. It was the biggest quarter for bond-fund sales since Morningstar began tracking the figures in the first three months of 1998.

“It will take a while before people fully embrace equities again,” Pamela Hess, director of retirement research at Hewitt Associates Inc., a Lincolnshire, Illinois-based benefits firm, said in a telephone interview. “You can still feel the hesitation.”

Investors pulled $174.9 billion from stock funds last year and an additional $17.8 billion in the first six months of 2009, Morningstar data show. The Standard & Poor’s 500 Index lost 37 percent of its value in that 18-month stretch.

Bond funds garnered $31.7 billion last year and $131.6 billion in the first half of 2009, according to Morningstar. The Merrill Lynch & Co. U.S. Corporate & Government Master Index rose 5.8 percent from the start of 2008 through June 2009.

Equity funds last outsold their bond counterparts in the third quarter of 2007.

Bond exchange-traded funds brought in more money than stock ETFs in the first half of 2009, according to Morningstar. Bond ETFs had inflows of $21.9 billion, while stock ETFs suffered withdrawals of $9.1 billion. ETFs typically track indexes and trade throughout the day like stocks.

Short-Term Trend

Burton Greenwald, a mutual-fund consultant based in Philadelphia, said investors’ preference for bonds is a reflection of recent performance, not a long-term shift in the way people allocate their money.

“The public is still responsive to short-term moves,” he said in a telephone interview. “It is a fact of life.”

Greenwald pointed out that investors have continued to put money into emerging-market stock funds, because their results this year have been strong.

Emerging-market stock funds attracted $10.4 billion through June, according to Morningstar. The MSCI Emerging Markets Index climbed 34 percent in the first half of 2009, after falling 54 percent in 2008, Bloomberg data show.

Michael Mullaney, who manages $9 billion in stocks and bonds for Fiduciary Trust Co. in Boston, said investor interest in developing markets may be a sign that those stocks have climbed too high.

“The retail mutual-fund investor is the worst market-timer known to mankind,” said Mullaney in a telephone interview.

Retirement Savers

The inflows into stock funds in the second quarter, when the S&P 500 gained 15 percent, were the first in a year.

Retirement investors shifted money from stocks to bonds between July 2008 and March 2009, according to Hewitt Associates, which tracks the investing patterns of almost 3 million participants in U.S. retirement plans. In April and May, money flowed back to equities, data on Hewitt’s Web site shows.

Hess of Hewitt described the return to equities as modest.

“People are not getting back into stocks to the same degree they got out of them,” she said.

To contact the reporter on this story: Charles Stein in Boston at cstein4@bloomberg.net.

Last Updated: July 14, 2009 10:33 EDT