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AAA  Mar. 19, 2013
Great Rotation? Not yet
By MARK JEWELL
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The Great Rotation. That’s the name market pros use to describe a long-awaited scenario in which investors take their money out of bonds and put it into stocks.

U.S. stock mutual funds began attracting cash in January for the first time since February 2012. But it’s maybe a half-turn, not a great rotation. That’s because money continues to be put into bond funds at a rapid pace this year, much as it has since the financial crisis in 2008.

Net deposits into bond mutual funds and exchange-traded funds totaled $59 billion through March 13, according to TrimTabs Investment Research. Bond funds have attracted cash at only a slightly slower pace than they did in late 2012.

Analysts expect the strong flows into bonds to continue, despite currently low yields. The yield on the 10-yr Treasury note hovers around 2 percent, although investment-grade corporate bonds yield around 3 percent and corporate “junk bonds” yield just under 6 percent.

“The expectations of a big exodus from bonds are way overblown,” says TrimTabs CEO David Santschi. One reason is that more and more baby boomers are retiring, and many rely on bond interest payments to meet daily expenses. Since the 2008 financial crisis, net deposits into bond funds have topped $1 trillion.

Still, since the stock market has returned to its past heights, U.S. stock funds and ETFs have taken in about $48 billion this year. Some of that may be coming from money-market mutual funds. They offer an average yield of 0.02 percent and their assets have dropped by $32 billion this year according to the Investment Company Institute.

If U.S. stock funds continue to take in money, this could be the first year since 2006 that they will grow from net deposits.

Associated Press
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