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

Tuesday, 16 Jul 2013 09:10 AM

By Michelle Smith

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Excitement about the "Great Rotation" out of bonds into equities is premature, according to TrimTabs Investment Research, which says that while money is leaving the bond market, it is not pouring into stocks.

This year the bond market has been bleeding as yields have crept higher. Meanwhile, the stock market has soared. Many proclaimed that investors' appetite for risk returned and there were expectations that that long-term investors, such as pension and insurance funds, would move from government debt to the equity markets.

According to a TrimTabs report, the money continues to flee from bonds, but much of it appears to be going into savings or money market funds.

Video:
Economist Predicts 'Unthinkable' for 2013

Bond mutual funds and exchange-traded funds (ETFs) saw outflows of $67.9 billion in June and $11.8 billion from July 1 to July 11, the TrimTabs report shows, according to CNBC.

Meanwhile, savings deposits surged with inflows of $74.8 billion in June, while retail money market funds — open-ended mutual funds that invest in short-term debt securities — took in $33 billion.

But from the beginning of June through July 11, equity mutual funds and ETFs only received $20.8 billion, TrimTabs notes.

"We think we are a long way away from the 'Great Rotation' that so many market strategists are anticipating. Far more of the money coming out of bonds seems to be making its way under the mattress than into equities," the report states, according to CNBC.

Sentiment has improved this year but many have warned that investors' appetite for risk is likely to be tempered by elements of uncertainty, such as ongoing problems in Europe, indications of a slowdown in China and stubborn unemployment in the United States.

When the chatter about the "Great Rotation" was taking off earlier this year, Stephen Davies, CEO of Javelin Wealth Management, warned that it was premature. He said such a shift should only be expected once there is a pronounced economic rebound in the United States and a significant drop in unemployment.

"I think talk about the 'Great Rotation' has been massively overdone. I don't think we're going to see a massive switch out of fixed income into equities over the course of the year," he told CNBC.

Video: Economist Predicts 'Unthinkable' for 2013

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