Allocations to stocks and stock funds reached their highest level of the year in July, according to the latest AAII Asset Allocation Survey. Bond and bond fund allocations rebounded to levels not seen since last January, while cash allocation fell to a 14-year low.
Stock and stock fund allocations rose 0.5 percentage points to 67.5%. This is the largest allocation to equities since December 2013 (68.3%). It is also the 16th consecutive month and the 18th out of the past 19 months with equity allocations above their historical average of 60%.
Bond and bond fund allocations rose 0.7 percentage points to 16.7%, the largest allocation since January 2014. The historical average is 16%.
Cash allocations declined 1.3 percentage points to 15.8%. The drop puts cash allocations at their lowest level since March 2000 (15%). July was the 32nd month with cash allocations below their historical average of 24%.
Since hitting what was then an eight-month high in May 2014 (19.2%), cash allocations have declined by a cumulative 3.4 percentage points. Over the same period, equity allocations have risen by a cumulative 2.2 percentage points and fixed-income allocations have risen by a cumulative 1.2 percentage points. Thus, while we have not seen a big shift, there has been a rotation out of cash. Notably, yields on the five-year and 10-year Treasury bonds have risen slightly over this period. Plus, optimism about the short-term direction of stock prices has stayed below average in our weekly Sentiment Survey. Nonetheless, with yields staying near historically low levels, cash looks unattractive except to those investors who require cash reserves or expect prevailing market conditions to worsen.
This month's special question asked AAII members how much of their portfolio is allocated to index funds (mutual funds and ETFs) and how much of it is actively managed (individual securities and actively managed funds). More than 21% of respondents said between 90% and 100% of their portfolios are actively managed. An additional 10% said at between 70% and 90% of their portfolio is actively managed. At the other end of the spectrum, nearly 8% of respondents have more than 90% of their portfolio allocated to index funds and another 7% have between 70% and 90% of their portfolio passively managed. Approximately 12% of respondents said that roughly half of their portfolio is allocated to index funds.
July Asset Allocation Survey results:
- Stocks and Stock Funds: 67.5%, up 0.5 percentage points
- Bonds and Bond Funds: 16.7%, up 0.7 percentage points
- Cash: 15.8%, down 1.3 percentage points
July Asset Allocation Survey details:
- Stock Funds: 34.2%, up 1.8 percentage points
- Stocks: 33.3%, down 1.3 percentage points
- Bond Funds: 13.5%, up 0.7 percentage points
- Bonds: 3.2%, unchanged
- Stocks/Stock Funds: 60%
- Bonds/Bond Funds: 16%
- Cash: 24%
*The numbers are rounded and may not add up to 100%.
The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online here.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.