Salient to Investors:

A shift by household investors from bonds into equities is being muted as pension funds and insurers boost fixed-income assets to match future obligations.

JPMorgan Chase and Milliman said US companies with the largest defined-benefit pensions raised allocations to fixed-income to 41.3 percent from 36 percent in 2010, life insurers are replacing maturing structured securities with corporate bonds, and sovereign-wealth funds are investing 90 percent of it into debt. JPMorgan said institutional investors own the vast majority of corporate bonds, controlling 90 percent of investment-grade securities and 75 percent of high-yield bonds.

Jeffrey Gundlach at DoubleLine Capital said that if there were this rotation by individuals from bonds into stocks and it created higher yields and stronger stock performance, it would quickly find a match on the other side of the trade from the institutional pension community. Gundlach does not think it is a runaway condition because it is difficult to believe that an aging investor population will increase their holdings in riskier assets.

There are 78 million US baby boomers – those born from 1946 to 1964.

Guy LeBas at Janney Montgomery Scott said a very large portion of the bond market can’t rotate out of bonds and into stocks because of their investment guidelines.

The decline in issuance of structured debt such as mortgage-backed securities has left fewer choices for investment managers. Sovereign wealth funds are increasing assets by $500 billion annually, boosting demand for fixed-income investments.

Matthew Duch at Calvert Investments said there is a continual need from the traditional fixed-income players, so the demand for fixed-income will always exist.

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