Old Mutual Global Investors' (OMGI) Stewart Cowley believes the so-called ‘great rotation' into equities from fixed income is not occurring on a cash level, despite suggestions to the contrary.
Among those citing evidence of a significant shift into equities has been Bank of America Merrill Lynch, which said its latest survey of global fund groups suggested more than half of investors had moved overweight equities, the highest position since February 2011.
Figures from the Investment Management Association (IMA) also suggested a switch in investor attitudes.
But Cowley, head of fixed income at OMGI, said equity market trading volumes remained thin.
"There is scant evidence this ‘great rotation' has taken place, despite the IMA figures showing a bit of a shift," he said.
"Equity trading volumes are still 28% below what they were in 2007, which shows there is little evidence a shift is occurring on a cash level. Instead the rotation is coming from the derivatives markets."
He added gilt yields would be under greater pressure if the 'rotation' existed.
"Gilt yields would be higher if the great rotation had taken place," he said. "In my opinion gilt yields should be at least 2% higher than they are today, to compensate for rising inflation and the additional credit risk you are taking on."
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