Some thought-provoking points on the “cult of equity” in a new Citi report. Of course, many of the people promoting the following view are fixed income sorts who would benefit from a long-term reallocation of money from equities to bonds, but that doesn’t make it any less provocative a view.
- The Cult Of The Equity – Global pension funds spent the second half of the 20th century raising their equity weightings to well over 50%, mostly at the expense of bonds.
- Valuation Crossover – This helped to drive equity dividend yields below bond yields. Equities yielded more than bonds for much of the previous 50 years.
- Cult Under Attack – A disastrous decade for global equities, including two fifty percent bear markets, has put the equity cult under attack. Equities are now yielding more than government bonds in all the major markets.
- Valuation Shifts – Global equities now look reasonable value against government bonds, but investment grade corporate bonds look even cheaper.
- Equity Still The Cyclical Asset Class – Equities underperformed as the global economy fell into recession and should outperform as it comes out. However, we suspect that some disillusioned investors may remain sellers into any rally.