Tags: great | rotation | stocks | bonds

CNBC: 'Great Rotation' From Bonds Into Stocks Is Finally Underway

By    |   Friday, 22 November 2013 07:31 AM EST

A "Great Rotation" out of bonds and into stocks — that on-again, off-again phenomenon that stock market bulls have been trumpeting without overwhelming evidence for months — is finally a reality, strategists say.

The result could be one of the major investment themes for 2014, CNBC reported.

Stocks have already been the best-performing asset class this year, while bonds have fallen out of favor and have produced paltry returns.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

"The Great Rotation has started and if you look at the U.S., we've had record redemptions in bond funds this year and of course when the [Federal Reserve] tapering fears started even more people piled into equities," declared Beat Wittmann, CEO of TCMG Asset Management, which has approximately $10 billion worth of assets under management.

In part because of expectations the Fed will pull back on its asset purchases, bond funds globally have experienced some serious drawdowns this year.

But there has been about $231 billion worth of inflows into stock funds, according to estimates from Bank of America Merrill Lynch cited by CNBC.

The bank said in a client note that of 272 investors who participated in a survey last week, two-thirds said equities are the best place to be in 2014, CNBC reported.

"Clients are absolutely bearish on bonds and commodities with only 2 percent finding government bonds and commodities appealing in 2014," said the BofA note.

Wittmann predicted, "Its likely to be a slow unwind out of bond markets."

But Larry Fink, CEO of BlackRock, forecast major investors like pension funds will rotate some assets out of stock and into the bond markets as the end of the year draws near to rebalance their holdings.

"We are going to start seeing pension funds selling equities and buying bonds. If people are going to have a formula as to how they do asset allocations, they have to stick with it. There is going to be some pressure into year-end on this rebalancing," Fink told Bloomberg TV.

Doubters of the "Great Rotation" theory have said that while capital has in fact come out of bonds, a significant portion is still sitting in cash or in other instruments besides stocks.

U.S. companies with the largest defined-benefit pensions have raised allocations into fixed-income to 41.3 percent from 36 percent since 2010, putting a greater share into the market than into equities, according to JPMorgan Chase analysts and data from actuarial and consulting firm Milliman, Bloomberg reported.

"If there were this rotation from individuals from bonds into stocks and it created higher yields and stronger stock performance, it would quickly find a match on the other side of the trade from the institutional pension community," said Jeffrey Gundlach, chief executive officer of DoubleLine Capital.

"I find it difficult to believe that an aging investor population is going to be ratcheting up their holdings in riskier assets."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Related Stories:

Sanford Bernstein: 'Great Rotation' of Bonds to Stocks Is Flawed Theory

TrimTabs: 'Great Rotation' Out of Bonds Into Stocks 'Long Way Away'

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InvestingAnalysis
A "Great Rotation" out of bonds and into stocks — that on-again, off-again phenomenon that stock market bulls have been trumpeting without overwhelming evidence for months — is finally a reality, strategists say.
great,rotation,stocks,bonds
516
2013-31-22
Friday, 22 November 2013 07:31 AM
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