High-yield debt funds raised their allocations to stocks to 3.2% at the end of March, up from 3.1% at the end of 2013 and just 2.1% one year earlier.
JPMorgan suggests investors do more of the same: “We see credit as relatively over-owned and valued versus other risk assets,” says JPMorgan. “Investors are beginning to worry about how the eventual exit will fare in a world of reduced market making by banks.”
The move comes as junk bond yields scrape record absolute lows, and on a relative basis, junk buyers are earning 346 basis points more than benchmark rates, the lowest since 2007 and 241 basis points less than the two-decade average. “We prefer to take more risk in equities and we now cut the size of our U.S. high-yield spread trade by one-third," says JPMorgan.