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Invesco's (IVZ) ETF management group, PowerShares, announced the launch of the NYSE Century Portfolio ETF (NYCC) earlier today.
By tracking companies that have been incorporated in the U.S. for at least 100 years, with a market cap of over a billion dollars and are currently trading on the NYSE or NASDAQ, this fund offers exposure to some of the strongest institutions available.
The financial crisis changed nothing, writes Vanguard's Fran Kinniry: Investors continue to chase returns, and have lately been jettisoning fixed income for stocks. Driven by the 4th greatest bull market on record - a cumulative return of 198% since the bottom - global equity allocation for investors has increased to 57% from 38%, and vs. the 20-year median of 51%.
It's probably time for the typical investor (one with an equity-heavy portfolio) to maintain a prudent allocation by directing new cash flows into bonds, while selling stocks - the exact opposite of where money is flowing today.
"Rebalancing usually seems counterintuitive at the time when it promises to be most effective," says Finniry. "It can be difficult to implement from a behavioral standpoint and requires incredible discipline." With equities partying and the near-universal belief of higher interest rates on the way, who could blame an investor for not wanting to sell stocks and buy bonds.
"It is very common following significant gains in the equity markets for investors to question the benefits of rebalancing," but it's never "different this time;" instead it's the "same as it ever was."
Sign of the times: Bill Gross' Total Return Fund (the ETF version is BOND) is no longer the world's largest mutual fund as fixed-income loses favor and indexing makes a comeback. With $251B in AUM, Vanguard's Total Stock Market Index Fund (ETF version is VTI) has moved to the #1 spot.
The Pimco fund is suffering its worst year of redemptions ever, losing $4.4B in October for a YTD total of $33.2B (it's down about another $4B due to market losses). Bond mutual funds in total have seen $117B in redemptions in the four months ended September vs. $35B of inflows into stock funds (earlier: October is 3rd best month ever for stock fund inflows).
Estimated at $54B, according to TrimTabs, stock fund and ETF inflows in October were the 3rd largest monthly total on record. Bond funds lost $26B during the same period, the worst month since 2000.
Separate data from BlackRock shows a rush of money entering funds following a deal to end the government shutdown - $24.3B of the $32.9B of money entering ETFs worldwide during the month occurred after October 17.
Bears vanish in the AAII Investor Sentiment Survey, falling 7.3 points to just 17.6% in the week ending October 23. The last time it was this low was in early January 2012, not the worst time in the world to buy.
Bulls were 2.9 points higher to 49.2%.
At the August low (and when the 10-year Treasury rate was 50 basis points higher), bears were at 42.9%, bulls at 29%.
With Nouriel Roubini now preferring the moniker "Dr. Realist" to "Dr. Doom," and David Rosenberg turning optimistic, who's left to sell?
"If you picture a small child throwing a stone upward and out over the edge of the Grand Canyon, you’ll get a general idea of the market trajectory that we expect over the completion of this cycle," says John Hussman, remaining faithful to his fans.
He notes the S&P 500 price/revenue ratio of 1.6 is double the pre-bubble historical norm of 0.8. At the 1987 peak, the ratio was less than 1. At the 1965 and 1972 highs, it never breached 1.3.
"Also, take care to note that the price/revenue multiple is twice the historical median – not twice the level where bear markets have typically ended. No, the price/revenue ratio is closer to three times that level."
It's no surprise fixed income is a hated asset class, but how much so? Just 4% of respondent's in Barron's Big Money poll of money managers are bullish on the sector, with 85% bearish. By contrast, 79% have a positive view of equities vs. 7% negative.
Not surprising given negative feelings about the bond market, the utility sector garners the most votes (32%) for being the worst expected performer over the next year. Taking first place for the sector expected to perform best is - what else - tech.
WIth 91% of managers in agreement, Sears (SHLD) tops the list of most-hated stocks. Next at 87% is Tesla (TSLA). After that with 80% Is Herbalife (HLF), followed closely by ZIllow (Z) and Netflix (NFLX).
Apple (AAPL) and Berkshire Hathaway (BRK.A, BRK.B) top the list of most-loved stocks with 70%, followed by Citibank (C) at 60%.
"Year-end risk is to the upside not the downside," says BAML chief investment strategist Michael Hartnett and team. "The current brief de-risk on Wall Street will likely be followed by a truce in Washington and renewed stock market strength."
Hartnett sees little to disturb the "Great Rotation" from fixed-income to equities that began about a year ago (see chart of fund inflows). Outflows from stock funds since the D.C. staring contest began are modest compared to the gusher amid the 2011 showdown. "Investors have seen this all before. Call them jaded."
Finally, he notes the Fed "put" - no chance the central bank tapers amid a tanking stock market.
The team continues to recommend overweight positions in stocks, high-yield bonds, and emerging markets.
Seeing weaker returns for fixed income going forward following a 30-year bull market, Fidelity is boosting equity exposure in its target-date retirement funds. For investors under the age of 67, allocations to equities will rise as much as 1500 basis points.
The move to a more aggressive stance brings Fidelity more inline with that of 401(k) plan competitors like Vanguard and T. Rowe Price (together the three control about 75% of industry assets).
Fidelity's changed mix will have a 90% allocation to stocks until workers reach 48 vs. 75% now. By the time they reach age 84, about 75% will be in fixed income and cash.
The summer bond crash has fund managers shuffling money into equities, according to the BAML fund manager survey, which shows those overweight stocks rising to 60% in September - the highest level since February 2011. Digging a little deeper finds exposure to consumer staples (XLP) is the highest in 10 years, to European stocks the highest in 6 years, and an 11-year high for U.K. equities (EWU).
Blogger ukarlewitz digs even deeper and finds the spread between equity and bond ratings is the 2nd highest in the 12-year history of the survey.
Undermining this apparent confidence, notes BAML's Michael Hartnett, are cash levels that remain "exceptionally high" at 4.6%. He reminds of the rule to buy stocks when cash is above 4.5%, and sell when it falls below 3.5%.
Bond yields won't present a headwind to equities until the 10-year Treasury gets to the 3.25-3.5% level, says Credit Suisse, recommending clients stay overweight stocks.
Year-over-year global GDP growth is accelerating for the first time in 3 years.
Liquidity conditions remain supportive with the first Fed rate hike still many quarters away.
The trends of equity outflows/fixed income inflows has now clearly reversed. Not mentioned by those bullish because of the great rotation is that stocks have had a massive rally the past few years as money exited equity funds. Why then would inflows be a tailwind?
That this bull market is "unloved" is a myth, writes Brent Arends. Retail investors poured $92B into stock mutual funds YTD, according to ICI, compared to last year's first 7 months in which they withdrew $180B. The last time this sort of money flowed into stocks was the first 7 months of 2007.
Separately, a JPMorgan report says retail investors are not overweight bonds and instead appear to be "significantly overweight" equities.