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Advisors say in the fear-greed battle, investors are finally dropping their fear. Individual investors are becoming more active in the stock market, while mutual fund companies are moving into both stocks and bonds.
Darell Krasnoff, managing director at Bel Air Investment Advisors said "I think we're seeing fear fatigue." He says this is "very early" in the shift away from fear but there is tremendous room for money to return to stocks and drive up prices.
Why Value Investors Are Having Such A Tough Time (Advisor Perspectives)
The time since the 2008 crash has been difficult for value investors and managers that buy stocks cheap and wait for the market to realize the actual value of the stock. During these volatile years, growth stocks have performed better.
There are four key reasons why value managers have underperformed the past few years. 1. "Mean reversion has been implied" 2. "Value traps are more prevalent" 3. "Security selection has become more difficult" 4. Value investors aren't patient enough.
Bank of America attracted a record $24.3 billion in new assets in 2012, up 28 percent year-over-year. Assets increased in its unit servicing retirement and other employee benefit plans, according to Bloomberg. Big banks are up against traditional account managers like Vanguard to attract the $3.5 trillion that Americans hold in their 401(k) retirement plans.
"Talk of 'Great Rotation' smacks of the complacency surrounding the 'Great Moderation' theme of 2005-2006 when Wall Street pundits tried to convince the general public that the world's central banks had the business cycle licked. Look how well that theme turned out - it wasn't long thereafter that we endured the 'Great Recession'. And that ended too, by the way.
"Beware of the term 'Great' at all times. It is the ultimate of contrary signposts. As David Berman so aptly puts it on page B12 of the Saturday Globe and Mail, 'ignoring Wall Street has never been a bad idea'."
Gold is down today after taking a beating on Friday. Deutsche Bank's Xiao Fu writes that this could be because of the drop in equity risk premium (expected rate of return of stocks over bonds), which is impacted by rising yields.
The recent rise in bond yields was driven by the December FOMC minutes which showed for the first time that the Fed was thinking of wrapping up QE by the end of 2013. The Fed will release the minutes of its January FOMC meeting on Wednesday and this could be key for gold investors.
"Our Economics team expects the Fed to begin unwinding its unconventional policy by ending QE purchases around Q4 this year. This could lead to higher yields and further headwinds for gold prices. Even so, the erratic nature of the recovery in U.S. real economy data indicates that real yields and the gold price will remain sensitive to Fed speak. Consequently the release of the FOMC minutes this Wednesday will provide important guidance on the U.S. monetary stance and thus gold prices in our view."
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