We told you last month that institutional investors were starting to flee from bonds and their paltry yields while average Canadians are still piling into the asset class.
New data suggests even more pain awaits Canadian investors who aren't heeding the warning signs from the smart money.
Statistics released this week by the Investment Funds Institute of Canada shows that Canadians bought a net $1.59-billion in bond funds in November, up 7 per cent from the same period a year ago. But year-to-date sales of $17.9-billion to the end of last month are more than two and a half times larger than sales in the same period a year earlier.
Investors, meanwhile, continued their multiyear trend of pulling money out of equity funds. To date this year, investors had redeemed, on a net basis, $12.9-billion worth of equity funds, more than the $9.25-billion redeemed up to this point last year.
The smart money says they're dead wrong. Sophisticated Boston fund manager GMO LLC and the Caisse de dépôt et placement du Québec say they are cutting their exposure to fixed-income investments, which have generated terrific returns since 2000 as yields have been driven down to historic lows. Meanwhile, equities have had a good run this year – and are starting to look more attractive to fund managers.
Leo de Bever, chief executive officer of public fund management giant Alberta Investment Management Corp., said Thursday he preferred stocks over bonds over the medium to longer term, despite his feeling there will likely be a major correction in equity prices in the next four years. "Five years ago I wouldn't have said [equities are preferable to bonds] he said. "But the bond market is so out of kilter that's about the only sensible option you have … The odds of making money on bonds over a five-year horizon, I'm pretty sure, are zero."
Somebody should tell Canadians before they add even more bonds to their portfolios.
Sean Silcoff