It seems the tortured separation between institutional investors and equities may be coming to an end, as investors' dalliance with bonds loses its shine in the low-yield environment. Take pension funds, which moved from stocks to bonds following the crash to reduce the volatility of their funding levels. It has become increasingly clear that bonds are not going to help them close their deficits, and the survey suggests they will increasingly return to equities for growth and income - going so far as to suggest we are seeing the 'bondification' of the asset class.
So, is there some future for the cult of equity yet? It depends where in the world you pose the question. Take Japan. The survey found 10 per cent of Japan-based respondents believed the cult was dying, compared with 6 per cent in Europe, 3 per cent in the rest of Asia and only 2 per cent in North America. That is despite what was seen as a watershed moment last year when the country's mammoth government pension fund made a strategy shift away from bonds and towards domestic and foreign equities. If this promises a brighter future, it has yet to help Polar Capital (POLR), which reported its full-year results this week. Further outflows from the asset manager's leading Japan fund meant its assets under management fell at year-end for the first time since the financial crisis.
A different picture emerged in the results of Liontrust Asset Management (LIO), also covered by your correspondent in this issue. The manager has seen massive net inflows to its predominantly UK equity-focused investment strategies, particularly one fund that targets companies with a strong competitive barriers to entry - whether recurring business, intellectual property or strong distribution channels.
In last week's cover feature, we also looked at which expensive UK equities are worth their price tag, with a more quantitative stock screen. If general investor sentiment towards equity markets continues to ameliorate, that investment function will become ever more important. Nearly half (47 per cent) of the CREATE survey respondents predicted a rotation from bonds to equities, while nearly two-thirds (65 per cent) said equities will at least remain attractive while yields stay low.
This is expected to be complemented by retail investor demand - one of the drivers of Liontrust's success - with the survey projecting income-focused and multi-asset funds with an equity focus will grow rapidly. "They will have equity exposures that target underpriced, under-researched and unloved assets," the report suggests. Perhaps easier said than done.
There are yet reasons to steer free of the Kool-Aid. "We don't know how markets will react when the first rate rise comes," says Nick Lyster, European chief at Principal Global Investors, which sponsored the survey. He predicts the market will take the return of rising interest rate rises in its stride, but the scenario remains unpredictable given how the first steps towards a bond sell-off seems to have impacted equity markets this year. European stocks have also been stalked by the Greek debt crisis for longer than some would have expected.
In religious studies, the word 'cult' has fallen out of favour. After all, what distinguishes a cult from an emerging religion? The designation is highly subjective and mostly pejorative, and has been replaced by the neutral euphemism 'new religious movement' among scholars. Perhaps the shift in global investor sentiment towards equities is better understand as a 'new equity movement', characterised by a need for investment growth and income in a low-return global market. Hardly rolls off the tongue, though.
