The “cult of the equity” that prompted investors to favor stocks at the expense of bonds is dead, according to Robert Buckland, a global equity strategist at Citigroup Inc.
As the CHART OF THE DAY illustrates, dividend yields on Japanese, U.K. and U.S. stocks have exceeded yields on 10-year government debt within the past three years. This comparison is based on payouts from companies in the Nikkei 225, FTSE 100 and Standard & Poor’s 500 stock indexes, respectively.
Stocks now yield more than bonds in Germany as well as Japan and the U.K., as Buckland noted in the report. While the chart shows that dividend yields are lower in the U.S., he noted that money is flowing out of equity mutual funds.
In a report two days ago, Buckland traced the cult’s origins to the 1950s, when the dividend yield on the S&P 500 dropped below yields on 10-year Treasury notes and AAA rated corporate debt.
During the past decade, pension funds and individual investors alike moved away from stocks as volatility rose and returns suffered, Buckland wrote. Bonds were the beneficiaries of this shift.
“There could still be considerable institutional selling to come,” the report said. U.S. corporate pension plans would have to unload $1.9 trillion of shares to cut their equity holdings to 20 percent of assets, a prevailing allocation in the 1950s and earlier, he estimated.
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