Assets swing like a pendulum do — but just how far?

Investors' bond allocation now double what it was in 2007
NOV 15, 2012
By  JKEPHART
The fourth year of the great bond buying jamboree looks as if it's about to come to an end. Thus, it seems like a good time to take a look at just how far investors' portfolios have swung toward fixed-income and away from equities. Investors' bond allocation, which includes both mutual funds and exchange-traded funds, has climbed to 26% today, double what it was in October 2007, when the stock market reached its peak, according to Morningstar Inc. This year alone, more than $220 billion has flowed into bond funds, bringing the total amount of fixed-income assets to $2.4 trillion. On the other side of the ledger, the allocation to stocks has fallen to 37%, down from 48% at the market's peak. That downsizing has occurred even as the markets have rallied to within bowshot of the October 2007 highs. Through the end of October, investors have pulled almost $85 billion out of U.S. stock funds, dropping the total amount of assets to $3.4 trillion, according to Morningstar. The big headwinds facing the economy — whether it's the fiscal cliff, a recession in Europe, or a slowdown in China — have clearly scared the most risk-averse investors away from stocks. That same aversion to risk isn't being seen on the bond side, however. Traditionally risky areas of fixed-income, such as high yield bonds, emerging markets debt, multi-sector and nontraditional bond funds, have themselves accounted for $80 billion of inflows.

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