Retail investors shifting back to stocks
So are we on the verge of a historic rotation into stocks from bonds?
In recent years, it's been hard for equities to compete as interest rates plunged, but we may be hitting an inflection point. For evidence, supporters of this view have been touting the strong inflows that equity funds are experiencing these days.
Investors delivered $3.75 billion into stock mutual funds in the latest week, which followed a truly extraordinary week, during which $7.53 billion arrived in new stock funds---the most new cash since 2001, according to Reuters.
"The two sums combined, however, amount to $11.3 billion, which is the biggest two-week gain since April 2000," according to Lipper data.
Bond funds saw inflows as well, but the conventional wisdom right now is that we're on the verge of a big rotation.
Bank of America Merrill Lynch Chief Investment Strategist Michael Hartnett, for example, "has been out in front of the rest touting the 'Great Rotation' theme for 2013 – and he says it's already begun. Even though the public data don't show investors shifting out of bonds and into stocks yet, Hartnett says BofA's data on client position does show exactly that," reports Business Insider.
He wrote to clients: "The past seven years have seen a Great Divergence in terms of fund flows. Investors have poured $800 billion into bond funds and redeemed $600 billion from long-only equity funds. But recent data show the first genuine signs of equity-belief in years. The past 13 days have seen $35 billion come back into equity funds ($19 billion of which is via long-only)."
For all this to work, retail investors will have to get over their recent fears of stocks, which shouldn't be too hard. People liked to play up the notion that the retail sector was afraid of what it saw as rigged markets, but good performance, we suggested, would bring them back. That may be happening now.