'Bondification' of equities rising as investors chase returns: study

BONDIFICATION of equities is on the rise as risk-averse investors chase returns, according to the findings of a survey released on Wednesday by CREATE-Research. The annual independent survey was commissioned by Principal Global Investors and its parent company, Principal Financial Group.

While two-thirds of respondents remain favourably disposed to equities, they also believe that investing today is about finding what works in a world of near-zero interest rates, with 70 per cent stating that investors will chase returns, not asset classes.

This quest for returns is likely to increase demand for defensive stocks at a time when equity risk premia remains high and volatile and the idea of a "risk free" asset is sidelined at today's bond valuations.

"The revived interest in equities is being driven by a high wire act. Investors are recognising that future returns for most asset classes will be much lower than in the past but they are also conscious of missing what may be a once-in-a-generation bull market. The result will be a 'bondification' of equities, as investors chase stocks with good dividends, less debt, strong pricing power, free cash flow and a high return on equity," said Amin Rajan, CEO of CREATE-Research and the author of the report.

The findings are based on a survey of more than 705 pension plans, sovereign wealth funds, asset managers, pension consultants and fund buyers across 29 fund jurisdictions, with a combined AUM (assets under management) of US$26.8 trillion. The survey was followed by 102 interviews.