Salient to Investors:

David Kostin at Goldman Sachs said volatility – the drawdown risk – will deter investors from moving into stocks from bonds in 2013 even as dividend returns exceed fixed-income yields. Kostin said most investors will sell US government bonds if losses push the 10-yr Treasury yield to 3 percent from 1.85 percent currently.

Jim O’Neill at Goldman Sachs Asset Mgmt expects a “great rotation” into equities in 2013.

Nikolaos Panigirtzoglou at JPMorgan Chase said sustained higher yields, negative 5 percent bond returns and reduced uncertainty are needed for retail investors to change their psychology.

EPFR Global said investor deposits into global equity mutual funds in the first week of January were the second highest ever. ICI says investors have withdrawn more than $600 billion from mutual funds that invest in American stocks since 2007, while adding more than $1.1 trillion to bond funds.

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