Individuals, institutional investors and advisors have either dug deep into less-risky fixed-income assets or are holding large cash positions. In other words, many are watching the rally in stock exchange traded funds from the sidelines.
Indeed, volume in stocks and ETFs was very low in January despite the march higher in U.S. equities. Some technical analysts say low volume indicates lack of conviction and participation in the rally. Yet volume could increase if investors feel they are missing the boat and decide to chase stocks.
Doug Kass, Founder and President of Seabreeze Partners Management, for The Street writes that a shift from bonds back into stocks could drive the S&P 500 to all-time highs in 2012.
Since 2007 through 2011, retail investors sold $450 billion of domestic equity funds, bought $130 billion in international stock mutual funds and amassed $930 billion in bond funds, according to Investment Company Institute data.
Since 2001, stocks as a percentage of investors’ portfolios dipped from 25% to 18 while stock mutual funds have dropped 79% of total fund assets to 65% by the end of 2011. Meanwhile, hedge fund exposure dropped to 44.3%, close to a four-year low, according to Kass.
“I expect the recent trend of large outflows over the last year (and last five years) to be reversed in 2012,” Krass said of equities. “Not only are interest rates at generational lows but many high-quality companies are yielding (at 2.5% or even better) well above the yield on the 10-year U.S. note.” [What a ‘Golden Cross’ Means for Stock ETFs]
However, Krass cautioned that “the pace of inflows will be slow,” but he still expects the “rotation out of bonds and into stocks to accelerate.” [‘January Barometer’ Bodes Well for Stock ETFs]
iShares S&P 500 (NYSEArca: IVV)
This story has been updated to correct the website where the Doug Kass article was published.
For more information on the broad equities market, visit our S&P 500 category.
Max Chen contributed to this article.