Way back in the Summer of 2003, I wrote a report that analyzed the Contrary Indicators 2000 – 2003 Bear market. It consisted of both internal and external signals that strongly suggested that the 2000 crash was over, and it was safe to get back into equities.

The second of the external signals was that PIMCO’s Total Return Bond fund had surpassed the Vanguard S&P500 fund to become the largest mutual fund (as of October 2002) in the world.

I bring that up this morning, with futures solidly to the upside, as a similar (if more modest) contrary signal has appeared: Last week, “bond and money market assets at Boston-based Fidelity now total $848.9 billion, more than half of the company’s $1.6 trillion in managed assets.

What makes this so noteworthy was that for most of its history, Stocks were king at Fidelity Investments. Recall the days of Peter Lynch‘s Magellan fund. The thought of investing in a bond fund was almost laughable back then. It was an era of stock picking, the residue of which remains a misplaced and nearly obsessive focus in the media even today.

The PIMCO vs Vanguard observation was noteworthy in October 2002, when Bonds surpassed Equities as the bottom of a brutal crash was occurring. The technical types will point out markets were tracing a double bottom, with March 2003 holding near the October lows setting up the start of the next leg higher.

Now that Stocks have been eclipsed by bonds at Fidelity, are we approaching a very similar moment? The key difference is that markets are up 100% over the past 3 years, not down 81%, like the Nasdaq was in October 2002. Regardless, this is an interesting contrarian sign; it suggests to me we are closer to the end of the secular bear that began in March 2000 than we are to the beginning.

My best guess? This is the seventh inning stretch. If we get a recession in 2013-14, you will have one terrific chance at a low cost, lower risk entry point into equities. If only the markets were so accommodating . . .

Fidelity’s stock funds eclipsed by bond and money market assets
Tim McLaughlin
Reuters, Sep 26, 2012 7:45pm EDT

Category: Contrary Indicators, Investing, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Fidelity’s Bond Funds Now Larger Than Equity Offerings”

  1. Orange14 says:

    Is there any way to break out this data as to what is in retirement funds and what is in taxable investment? A lot of boomers are either in retirement or within 7 years of retirement and may have simply been adjusting investment allocations to reduce equity exposure. I think this is a plausible explanation which was not necessarily the case 10 years ago.

  2. [...] The single most bullish data point – Fidelity is now managing more money in bonds/cash than equities!  (PhilPearlman) and (TBP) [...]

  3. Moss says:

    P/E ratios sure are not in any bargain range. The Fed is dead set on reflating any financial asset it can. The other thing is that ETF have taken over for Mutual Funds.

  4. Orange14 says:

    @Moss – yes, ETFs have moved up the chain but there are bond ETFs as well and the important data point is the ratio of investment in equity vs. bond ETFs.

  5. Terrific article and great contrarian view!!!

    While I tend to distrust technical analysis for “secular” trend predictions (which are more influenced by fundamentals as those shown by the article), what is clear is that in the somewhat shorter term (i.e. 2 years), the stock market is under a primary bull market. Furthermore, such primary bull market is “young” (it was signaled on June 29), so the odds favor its continuation. On top of this, volume has been supportive since it tended to go up as the rally progressed (in spite of overall low volume levels, but the important thing about volume is not the “number” but its trend).

    The Dow Theory is clear about this: the stock market is saying that it wants to go up, all the “end of the world” criticism notwithstanding.

    Here you have 5 reasons for the bullish case in the next few years:



  6. [...] Fidelity’s bond funds now larger than equity offerings (TBP) [...]

  7. gordo365 says:

    Consider demographics. Could boomers moving into safer assets explain the shift?

  8. BennyProfane says:

    Yeah. Duh on the demographics, especially after ’08, and doubly Duh especially after the flash crash with no reform there, and continuing development of HST techniques that all but ignore the retail investor.

  9. wally says:

    “It was an era of stock picking, the residue of which remains a misplaced and nearly obsessive focus in the media even today.”

    Absolutely. It is amazing how deeply ingrained that whole theme became. To this day it dominates financial writing and financial websites and probably the public perception of what “investing” means.

  10. VennData says:

    U.S. manufacturing grows in September


    The US economy continues to grow, to add jobs, to pull the world along. The GOP Media Machine wants you to think things are horrible,, the people who self-censor the fact-based media outlets are in a lather,

    …bemoaning the man who created $15T in debt, who raised taxes on everyone, killed off the family farm, small business, the US military, and took away our guns: Hussien “Kenya” Obama. ROFL! Make money while making fun of Republicans, it’s been a great four years…. four more on the way.

    Just invest, baby.

  11. ben22 says:

    on some level you have boomers retiring and shifting more of their portfolios from stock to fixed income funds, but I’m hard pressed to chalk much of this up to that and such a claim assumes mass rationality amongst “investors” (I no longer thought people believed that masses of investors were making moves in the markets that were in their best interests)…

    having worked with retail investors now for over 10 years, I’ve not come across a constant flow of retirees that immediately went to a more conservative as soon as they got to retirement…or even as they were nearing retirement

    generally the same portfolio is more common amongs those without an advisor of some sort (in my experience, which is just one perspective)

    While this issue is not unique to Fidelity (money out of stocks and into bonds), I’m sort of surprised nobody has brought up the fact that Fidelity’s equity offerings have not done well either in an absolute sense or relative to peers for a long time now and on some level this has to have been a contributing factor here.

    consider the old Fidelity flagship fund, Fidelity Magellan. Under Lynch this fund got as large as 64 billion and it was then closed to new investors in 1997. By August of 2000 it was over 100 billion in assets. Think the fund currently has roughly 40 billion in it, maybe even less…..and the performance of Magellan relative to peers has been very poor for well over a decade now…. going into the tail end of last year MorningStar showed it underperforming 96% of its peers on a 5 year trailing basis, complete with manager turnover, as there has been 5 new managers since Lynch left.

    Another fund I remember from them that was in a ton of qualified retirement plans was the Fidelity Advisor Diversified Internatinal fund formerly run by Penny Dobkin (fairly certain she’s not on this fund anymore)….during the last boom in international stocks I remember a wholesaler from Fidelity referring to this fund as their “japan fund”….iow, they missed much of the other markets run-up due to poor strategy/allocation of capital.

    I used to see both of these funds in 401k/403b plans on a regular basis…..not anymore. Remember in many cases you have HR people, often with little or no knowledge of markets, selecting 401k funds based on recent past performance….

    Two examples with a company that has a few hundred funds of course, but I’d guess performance has more to do with this than demographics.

  12. nofoulsontheplayground says:

    I would attribute some of this change to the introduction of age based retirement funds. It is quite common for an employer’s Fidelity program to default into the age based funds for enrollees. With a larger percentage of program participants being older employees, it would make sense for the programs to skew towards bonds.

    I think we’re still in the 6th inning of the secular bear that begain in 2000, although I am in agreement on the recession call in 2013 or 2014.

  13. Pantmaker says:

    Bonds and bond funds have the perception of being the safe spot. This move to safety is being driven by the demographics of the retiring boomer population. The elephant in the room is this move coincides with the Fed’s intentional manipulation towards 0% rates. When rates eventually wake from their deep sleep,bonds and bond funds will be eviscerated. Cash will be king.

  14. rd says:

    A few thoughts:

    1. Demographics of close to retirement boomers as several people pointed out.
    2. The demise of the defined benefit plan; people now need to build their own pension plan, including bonds.
    3. Target date funds have showed up in a big way as the default option. They tend to carry some significant bonds if you are over 45.
    4. Two major bears in a decade have scared many people out of the market; they are currently replaced by Wall Street trading with Bernanke and Geithner Bucks.
    5. Many people over the age of 40 have seen their big nest egg, their house, decline semi-permanently in value followed by their stocks. They now want to conserve their remaining assets – it will probably be the next generation that will have to pick up that stock market slack.

    I too think there is another great bull coming, but history indicates that it usually takes 15-20 years for the cycle to switch back to the bull; we are only 12 years in. Many of the problems are unfixed, just held in stasis by central bank machinations. One more cleansing cycle is needed to break the psychology that papering over problems works and that something is too big to fail. Imaginary fiscal and monetary solutions to real debt and budget problems usually are not the foundation of a long-term great bull market.

  15. [...] identify the fact that the S&P 500 had been risen in calendar years 2009, 2010 and 2011. At Fidelity Investments a recent milestone shows that the firm now manages more in bond and money market funds than it does [...]

  16. [...] identify the fact that the S&P 500 had been risen in calendar years 2009, 2010 and 2011. At Fidelity Investments a recent milestone shows that the firm now manages more in bond and money market funds than it does [...]