The Envestnet Edge

With so many portfolios seeking shelter in bonds and funds constantly flowing out of equities, could the investor herd actually be reversing the areas of the markets where "safety" and "risk" reside? This month, we ask, "When Following the Herd is Risky, Where is the Safety?”

• Contrary to conventional thinking, "safe" investments (e.g. government bonds) could pose more of a threat than "risky" investments (e.g. U.S. equities).
• Massive fund flows into "safe" bonds can create more volatility than expected: see German bonds at end of April.
• Meanwhile, underinvestment in "risky" assets may present opportunities: see U.S. equities in recent years.
• Investors and advisors may need to rethink perceptions of safety/risk, and if bonds/equities are best ways to define them.