One explanation is that investors rotated money out of fixed income and into cash and stocks, especially as government bond yields dropped and interest rates stayed low.
But according to Citi's "Investment Themes for 2015," the traditional rotation between equities and fixed income is losing its importance as a strategy.
Moving forward, investors will be looking into secular, long-term trends to move between asset classes, instead of the traditional moves that are driven by the business cycle, allowing for "a meaningful reallocation towards equity markets."
Citi's Mark Schofield writes:
"The biggest reallocation of assets that has taken place in the past decade has been de-risking out of equities and into cash. The trend towards diversification means that this move is unlikely to be reversed in its entirety but low rates and low volatility could be the trigger for some secular re-risking which could generate a significant increase in demand for equities over the next few years."
Schofield writes that these are the biggest secular trends that will drive demand:
- High Net Worth individuals have been very wary of equities since the financial crisis, but with the yield on the 10-year note below 2% and lower in Europe and Japan, they will switch.
- Insurance companies will increase their buying after a 15-year selloff because of changes in capital regulation and an increased focus on asset-liability management.
- Companies will take advantage of low rates to buy back their stocks.
Schofield adds that, "Flow data certainly suggest that the secular demand for equities may be turning after nearly two decades of contraction and we expect the aggregate demand for equities to continue to rise."
Citi