No Time to be Going Negative on Equities

January 24, 2010 by admin · Leave a Comment
Filed under: Economic Outlook

The reaction of many institutional and retail investors to the dire performance of equities over the past decade, and the equally unwelcome volatility induced by stock markets’ sickening rollercoaster ride, has been a negative one.
Greenwich Associates spoke last week of “strong indications” that many German institutions will not attempt to rebuild significant equity positions but will instead rely more on fixed income.
A week earlier, a survey of European and North American pension funds by bfinance, a consultancy, identified strikingly negative sentiment towards equities on a three-year view, with a net 21% of schemes planning to cut their exposure, even as they eye larger holdings of a swathe of traditional and alternative assets.
And UK pension funds have already set off in this direction, with the average fund having an equity exposure of 44.2% last summer, compared with 54.9% in 2007, according to the National Association of Pension Funds.
While wariness of the recent woeful risk/return dynamics of stock markets is understandable, are investors missing a trick, cutting their allocations just at the point they should be doing the opposite?
Research by Fidelity International suggests stock markets exhibit mean reversion on a decade-by-decade basis. In other words, fallow decades tend to be followed by bountiful ones that are powerful enough to bring the long-term return from equities back to the historic norm.No Time to be Going Negative on Equities

Tags: dire performance of equities, Negative on Equities