Re­ver­sal of a long-run­ning move into bonds is pos­si­ble

The Star Early Edition - - INTERNATIONAL - James Saft

WITH EQUITY in­dexes at all-time highs, global mu­tual fund and ETF in­vestors may be choos­ing now as the time to re­verse a long-run­ning move into bonds and out of eq­ui­ties.

That’s ei­ther in har­mony with re­tail in­vestors’ leg­endary abil­ity to pick the top or a canny bet on global re­fla­tion.

Since the great fi­nan­cial cri­sis the broad global trend has been for mu­tual and ex­change-traded fund in­vestors to load up on bonds. Glob­ally, funds held in eq­ui­ties ve­hi­cles went from above 90 per­cent of the whole in 2007 to about 70 per­cent now.

Net out­flows

And while that fig­ure for US funds bot­tomed at about 60 per­cent in 2010 and is now at 67 per­cent, equity funds have suf­fered net out­flows for the ma­jor­ity of the last few years, ex­cept for a spike in in­flows af­ter the 2016 US elec­tion.

This “de-eq­ui­ti­sa­tion”, driven partly by bat­tle-scarred in­di­vid­u­als and partly by a large move into long-term debt by pen­sion funds seek­ing to hedge long-term obli­ga­tions, has been ex­pen­sive.

Over the past five years, the S&P 500 has re­turned 13.4 per­cent per an­num, against just 2.3 per­cent for 10-year trea­suries. But now, what started as a mild trend in the US of upping equity ex­po­sure seems to be go­ing global, per­haps as the last bears ca­pit­u­late in the face of a low-volatil­ity march higher in equity mar­kets. – Reuters

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