The 'Great Rotation' Fallacy
I have heard a lot about the "Great Rotation" over the last few days. This is a theory that investors have been pouring money into the bond market, but as the economy improves and fear of tail events dissipates, these investors will rotate into stocks. For a narrative that has so much acceptance, there is very little evidence behind it. As I wrote last week, I'm growing more bearish on bonds but the Great Rotation thesis is a poor one. Indeed, following it can lead to some very poor asset allocation decisions.
Have investors actually been pouring money into bonds? Mutual fund flow data suggest that retail investors have been consistent buyers of bond funds, even after the worst of the financial crisis abated. According to the Investment Company Institute, general bond funds have increased 77% in assets since the end of 2009. In isolation, this fact would cause one to assume that retail investors are pouring into bonds, either because they are fearful of other assets or myopic about the risks of bonds. But digging a little deeper gives us another story. The chart below shows "strategic income funds" (the broadest bond market category that ICI tracks) by total assets (yellow) and a three-year rolling change in assets (blue)....371 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.
Already a Subscriber? Please login.
