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Equity markets professionals have been excitedly talking about a "great rotation" out of bonds and into stocks. Recent data from the United States shows a shift back into equities, but there was little evidence of such a move in Canada – until now.
In January, equity-only mutual funds experienced their first month of net sales (that is, sales less redemptions) since February of 2011, chalking up a net gain of $272.5-million. That is especially noteworthy because the last two positive months, February, 2011, and February, 2010, were both RRSP deadline months; you have to go all the way back to May, 2009, to find the last positive month for equity funds that wasn't bolstered by the RRSP deadline, and then October of 2007 before that.
Whether this shift is sustainable is another matter.
January's gain could suggest that investors are losing their fear of equity mutual funds – perhaps in reaction to rising equity markets or because of relief that the U.S. didn't plunge over the fiscal cliff. But there is, as yet, no compelling case to believe that a great rotation into stocks is under way in Canada.
In fact, the appeal of bond funds continues unabated – investors bought a net $1.3-billion worth of bond funds in Canada in January, up 16 per cent from the previous month. The fact that Canadians are continuing to plunge into the bond market when interest rates are rising off historic lows – rather than abruptly moving out in concert with a move into equities – suggests equities still carry a taint.
Canadians' caution may reflect the fact the resources-laden benchmark S&P-TSX composite index has turned in a more humdrum performance over the past year than the S&P 500 in the U.S. Or maybe Canadians are minding the warnings from some market watchers that a period of near record highs on U.S. stock markets is no time to be getting into stocks. Either way, if a great rotation has begun, it has yet to roll north across the U.S. border in any convincing way.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Sean on Twitter at @seansilcoff.
Sean Silcoff