Tags: Kinniry | risk | funds | stock

Vanguard's Kinniry: 'De-Risking Story Isn't There'

By    |   Tuesday, 04 November 2014 11:48 AM

Don't believe the hype. The airwaves have been full of commentators in the past five years saying investors are curbing their risk-taking.

But that's simply not the case, says Vanguard Group strategist Francis Kinniry.

"When people say that investors have been scarred by two bear markets [2000-2003 and 2007-09] and have not come back into the market, I don't know what data they are looking at," he told The Wall Street Journal.

"The de-risking story is not there." Rather, there's been a "re-risking" for several years, Kinniry said.

Looking at risky investments, investors have allocated $276 billion to international-stock mutual funds and exchange-traded funds (ETFs) in the past three years and $103 billion to emerging-markets stock funds, according to Vanguard.

In addition, U.S. stock funds have seen an inflow of $73 billion during that period, with the majority of it in the last year. Moreover, $197 billion has gone into U.S.-stock ETFs in the last three years.

On the bond side, $317 billion has flowed to below-investment grade and foreign bonds, compared with only $171 billion to safer bonds.

Before the financial crisis, investors had 63 percent of their assets in stock funds. This percentage dropped to 38 percent, but is now at 60 percent.

"We're nearing peak equity allocations," Kinniry noted.

Of course, there may be danger in all this risk-taking.

James Paulsen, chief investment strategist for Wells Capital Management, has a consistency indicator that measures the ratio of monthly gains and losses for stocks during the previous five years.

It now stands more than 100 percent higher than at the beginning of the bull market in March 2009.

"Consistency breeds complacency," he wrote in a commentary obtained by Bloomberg. "While the stock market did decline aggressively earlier [in October], its quick and nearly full recovery, if anything, has probably boosted complacency."

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Don't believe the hype. The airwaves have been full of commentators in the past five years saying investors are curbing their risk-taking.
Kinniry, risk, funds, stock
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2014-48-04
Tuesday, 04 November 2014 11:48 AM
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