“The Great Rotation” Money Flowing Out Of Bonds And Into Equities

“The Great Rotation” The Flow Of Funds From Bonds To Equities

The Great RotationBased on early 2013 stock market action and flow of funds data, one of the big investment shifts of our day may be at hand. It is already known as “The Great Rotation”—a tilting of pension and insurance funds’ strategic long-term asset preference back toward equity from extreme overweighting in bonds.  The argument goes that expensive, ultra-low yielding government debt is ripe for rebalancing. The attraction of relative and absolute valuations in stocks will encourage outflow from bonds into equities.

Market Bears Are Reconsidering Their Position And Feel It Is Time To Move Assets From Bonds To Equities

Even some of the most persistent and outspoken global equity bears are starting to re-think the big picture. One of those is Societe Generale strategist Albert Edwards. While he is still concerned about the next two years, Edwards now believes that over 10-years long-term institutional funds are in danger of missing “the cheapest equity prices in a generation.” That’s really saying something coming from such a committed bear.

2013 Has Already Demonstrated “The Great Rotation” As Funds Have Flowed Into Equity Funds

January fund flow data suggest the “Rotation” may have already begun. Fund analytics firm Lipper reports that net flows to U.S. equity funds in the first two weeks of 2013 was $11.3 billion, the biggest two-week inflow since April 2000. When you add exchange-traded funds (ETFs) to the mix, the number tops $18 billion, well over twice the flow to bond funds. Two weeks does not make a trend, but it’s important to understand that when a new trend begins it is normally accompanied by a sudden, extremely powerful reversal in the data, whether that be price action, fund flows, or both.

As an investor you don’t want to get stuck behind the momentum and in the back of the pack.  Be ready to make a financial move when the momentum is in your favor and before the stock market has really started to peak.  If you haven’t yet considered putting some of your assets back into equities, now is the time.  For more information speak to a Redhawk Advisor near you today.


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