“Volatility will deter investors from moving into stocks from bonds in 2013 even as dividend returns top fixed-income yields, according to Goldman Sachs Group Inc.’s U.S. equity strategist.
“It’s the drawdown risk that is inhibiting investors from reducing bond holdings and increasing equity holdings,” David Kostin said at a presentation in London “You need to have more stable markets. I do not anticipate flows into equities from bonds. It should happen, it won’t happen this year.”
The forecast is at odds with Goldman Sachs Asset Management Chairman Jim O’Neill’s comment this year that funds may be set for a “great rotation” into equities. Investor deposits with global equity mutual funds in the first week of January were higher than any other period except one, a sign they may be coming back to stocks after withdrawing cash for the past six years, according to data from EPFR Global.
The Standard & Poor’s 500 Index ended last year with a dividend yield that was 56 basis points, or 0.56 percentage points, higher than the yield on the benchmark 10-year Treasury, according to Bloomberg data. The spread reached a record weekly high of 1.16 percentage points in 2009 in favor of equities.
Most investors will probably sell U.S. government bonds if losses push the 10-year Treasury yield to 3 percent from 1.85 percent currently, Kostin said today.
2012 Advance…”
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