Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a655127

Investors show 'clear shift' from bonds to shares

Rising popularity of equity funds fuels claims of a 'great rotation' out of bonds.

 
Investors show 'clear shift' from bonds to shares

Sales of funds invested in shares out-stripped bond funds in each of the last four months of 2012, fuelling claims of a 'great rotation' into equities by yield-seeking investors.

While during 2012 as a whole fixed income funds were most in demand, attracting £5.6 billion in inflows, equity flows outstripped fixed income for each of the last four months of the year to total £3.4 billion.

Bonds have been popular for their perceived safety during the financial crisis. But some investors fear strong inflows are creating the conditions for a 'bubble'. This year investors are widely tipped to buy into dividend-paying shares as an alternative source of income.

The fund flows show a ‘clear shift’ in investor mindset, said Daniel Godfrey, chief executive of the IMA, the industry body that publishes the statistics.

The data comes amid questions over whether January's market rally in share markets can continue into the rest of 2013. Some market commentators are predicting a 'correction' in the near-future as the economic backdrop, while improved, remains weak.

13 comments so far. Why not have your say?

Geoff Downs

Jan 31, 2013 at 15:04

It's clear that the Fed's desire to get people into more risky assets is working.

The economic news is to say the least mixed. I am seeing more bullish comments from investors on numerous websites.

Are we eventually going to get a repeat of 2000 and 2008?

report this

Tony Peterson

Jan 31, 2013 at 15:25

No, Geoff, we are going to get a repeat of 1975.

That was the last year to begin with fund managers holding more in bonds than shares.

Have a little look at the history of the FT30 over that year.

report this

Rob Walker

Jan 31, 2013 at 15:29

The article doesn't clarify whether there is a switch from Bonds to shares, or is it just new money going into shares and not bonds. All my several corporate bond funds continue to be rising in value. Can you explain why that is happening Annabelle?

report this

Matthew Hill

Jan 31, 2013 at 15:50

Hi Tony. Do you mean you think we will have double digit inflation, and FTSE over 10,000?

I'm not convinced that Bonds will fall as much as many hope. I just can't help thinking Japan Japan Japan.

report this

Blind Jack

Jan 31, 2013 at 15:53

1) Rob Walker's question above is a good one and really needs an answer in order to understand what's going on between bonds and equities.

2)"a clear shift in investor mindset" presumably includes institutional as well as private investors as they have bigger investments and have a greater effect on the market? Are they the ones creating conditions for a bubble by investing in high dividend paying stocks?

BJ

report this

Chris Powell

Jan 31, 2013 at 16:01

I agree Tony

Geoff we have had 4 weeks of bullish comment not 4 years.

Rob I think you'll find that safe/government bonds are being reduced.

There is a very steep wall of worry to climb and trillions and trillions of dollars of money in safe assets to convert to shares yet.

report this

Tony Peterson

Jan 31, 2013 at 16:07

Matthew

I think that both are possible.

How probable, though, I cannot say.

report this

joe stalin

Jan 31, 2013 at 16:08

BIg bond funds are terrified of the prospect and having fighting the inevitable as hard as they can. Last week we learnt that Neil Kashkari had left Pimco presumably because his armageddon fund did not do as well as hoped I guess we haven't had a grexit spanit or porxit or clatterd over the fiscal cliff or dived into the ground in China blah blah blah. Interests will go up maye not tomorrow but up they will go which is not great for bonds. It is not rocket science the writing has been onn the wall for a while. The herd has started to stir but as yet there has not been a great rush for the exit . we are just waiting for somebody to shout "fire" and then surely we will see the rush. The talking heads are still talking and are still saying ah but this and ah but that but interestingly they are no longer the luminaries we used to see day in day out just a year ago.

report this

Geoff Downs

Jan 31, 2013 at 16:20

Chris,

First of all none of us know for sure what will happen, especially as few will have lived through such unusual times.

Sentiment may be driving the market, but that is being fed by QE.

We see in Japan the effect on their stock market as they start QE again.

Clearly the market is not being driven by fundamentals.

In my opinion we have been in a bear market since 2000, with two enormous spikes and falls in the period up to 2013.

At some point I think there will be a further leg down and then a period of sideway movement as we saw in Japan.

It is true that we all make our investments and then seek to justify them with what we think is a logical argument.

One further worry is the extent to which retail investors are buying into equities at a level I think is unwise.

Of course the propaganda on financial websites to get into the market is colossal and of course investors never like missing the party.

report this

Clive B

Jan 31, 2013 at 16:25

For funds, could look at the IMA (Investment Management Assoc) website, as it shows retail sales by sector

e.g. this one is Retail Sales, last 8 quarters (up to Q4 2012) by asset

http://www.investmentfunds.org.uk/fund-statistics/retail/?what=graph&show=11

Seems to show big drop in purchase of Fixed Income in Q4 2012, with big rise in Equity sales

report this

Chris Powell

Jan 31, 2013 at 16:53

Geoff

I agree with most of what you have said but nothing is not known in the market already. I disagree with you saying 'bullish' things are far from bullish has a reason for a third leg of a bear market- quite the opposite,

I agree about Japan but Japan was on PE's of 70 in the early 90's mega expensive.

All I would say is that if Spain needs a bailout then this momentum will vanish!

However, there is so much money in very expensive government bonds, gold, corporate bonds and cash that if things don't get a lot worse (and I mean something unforeseen) then the wall of fear will be climbed and more and more investors in 'safe expensive assets' will feel the pain and jump ship.

But no one can predict the future especially in Europe!

report this

Johnny Boy

Jan 31, 2013 at 19:47

Spot on no-one can predict the future but the past 40 years or so provides some useful pointers.

report this

Johnny Boy

Jan 31, 2013 at 19:47

Spot on no-one can predict the future but the past 40 years or so provides some useful pointers.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet