Tuesday, January 15, 2013

Equity Allocations: Do As I Say, Not As I Do

Pensions graphic
source:  Financial Times
 I went to go hear Andrew Garthwaite, chief global equity strategist for Credit Suisse yesterday.

It was a very informative 90 minutes.  Utilizing a presentation book that weighed in at 533 pages (!), Garthwaite gave a comprehensive look at the global equity markets. His basic message was that while he has some concerns about the near term outlook for stocks (he thinks the markets are overbought), he remains bullish longer term.

As you might imagine, in a presentation as lengthy as yesterday's,  I can't present all of Garthwaite's thoughts on this blog in one post.  However, there was one insight he gave that I thought was particularly noteworthy.

In a survey done by Credit Suisse in December 2012, 78% of respondents indicated that they felt that stocks would be the best performing asset class over the next 3 months.

In the same survey, 81% of respondents felt that stocks would be the best performing asset class for the next 5 years. Virtually no one (0.3%) indicated that government bonds would produce the best returns.

And yet, equity allocations have moved steadily lower over the last decade, as the chart from the Financial Times reproduced above indicates.

Retail investors are no better positioned.  Garthwaite indicated that since 2008 $1.1 trillion of assets have flowed into bond funds, while equity funds have seen $415 billion of outflows.

This disconnect between bullish sentiment and bearish positioning would seem to be one of the most bullish factors for markets going forward.