Equity Funds: Bonds and Research Note

equity funds: The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies, Harris and Woodard wrote, according to Market Watch. Indeed, the 339 billion in inflows to bond funds globally in 2019 and the 208 billion in outflows from global equity funds underscore the power of the ongoing rally in bonds, which has caused bond yields to fall enough that there are now 1,100 global stocks that are paying dividends above the average yield of global government bonds. But in a research note published by Bank of America Securities titled The End of 60/40, portfolio strategists Derek Harris and Jared Woodard argue that there are good reasons to reconsider the role of bonds in your portfolio, and to allocate a greater share toward equities. Bank of America Securities Caption outside of wrapper for normal article images Bank of America Securities Caption outside of wrapper for normal article images T1 M As global economic growth slows and populations in developed-market economies age, traditionally safer assets like bonds have grown in popularity and helped create a bubble in the bond market that threatens to derail returns for investors who maintain a typical 60-40 split, according to the B. of A. analysis. The core premise of every 60/40 portfolio is that bonds can hedge against risks to growth and equities can hedge against inflation; their returns are negatively correlated, Woodard and Harris added. The challenge for investors today is that both of those benefits from bonds, diversification and risk reduction, seem to be weakening, and this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers rebalance, the authors wrote. (news.financializer.com). As reported in the news.