Reversal of a long-running move into bonds is possible

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