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Despite the stock market's steep gains over the last two years and the sharp drops over the last week, there are no signs of panic among the general public. That's because unlike the last time the stock market went wild, this time the public hardly has any direct holdings. The best indication of the public's position is fundraising at the mutual funds, which is the instrument by which the public generally enters the stock market.

Even though the sector's figures are impressive in general, almost all the money mutual funds raised this year went into funds specializing in bonds. The ones investing in stocks raised just a few hundreds of millions of shekels, whereas funds investing in bonds had become enormously popular.

Look at the mutual fund tables in the paper and you see why. Over the last two years, most of the leading bond mutuals achieved yields of 10 to 30 percent. Stocks can do more, but that's very impressive for a low-risk instrument like bonds. No wonder, therefore, that the public went wild for bond-investing funds, making them one of the most popular instruments the banks were offering.

But Tuesday morning, when investors looked at TheMarker tables in the paper, they discovered their precious funds had sunk by as much as 1 percent, which is a decidedly large loss for such a conservative vehicle. What happened?

Nothing special. The only thing that happened is that investors in bond-oriented mutuals discovered what investment managers already knew: the portfolios of some of these funds is not as conservative as might have been thought.

Some funds specialize in very long-term bonds, which are highly vulnerable to fluctuation in interest rates; some spiced their portfolios with convertible bonds that are all but akin to stocks, and even stock options.

Bond-based mutual funds often can be the answer for investors seeking less risk than what stocks entail, but who want more interest than what bank deposits provide. But many simply don't understand that the returns these funds generated in the last two years are extraordinary, very far from the norm. Their performance was affected by the rapid slide in interest rates during these years, a slide that generated handsome yields for funds investing in bonds.

When Bank of Israel interest rates dropped almost to the level of the U.S. federal funds rate, the probability of further steep climbs in bond prices dwindles to practically zero. The probability that the small, high-risk stock component in the bond portfolios will generate significant returns is not particularly high, because not even the keenest bulls are predicting another 100 percent rise in the stock market.

In other words, some of the investors who put significant amounts of money into bond funds in the last few months, based on the funds' impressive performance in the last two years, are probably going to be disappointed. The funds' capacity for generating high profits is declining.

The king of the bond funds in the last two years has been the veteran broker Yaakov Weinstein. His talent and expertise generated very high yields during the period by virtue of which he raised a stunning NIS 2 billion for his funds. His management fees in 2005 alone make him a millionaire, in dollar terms.

But ask Weinstein what probability he foresees of generating anything like the same returns for investors in the coming two years, and he'll smile. He says he'll try. He's smart and experienced and knows this is not the time for fervor.