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Fixed-Income Allocations Rebound to a Four-Month High

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Individual investors’ fixed-income allocations rose to a four-month high last month, according to the June AAII Asset Allocation Survey. Equity allocations rose as well, while cash allocations pulled back.

Stock and stock fund allocations rebounded by 1.7 percentage points to 67.0%. This is the 15th consecutive month and the 17th out of the past 18 months with equity allocations above their historical average of 60%.

Bond and bond fund allocations rose 0.5 percentage points to 16.0%, the largest allocation since February 2014. The increase puts fixed-income allocations at their historical average of 16%.

Cash allocations fell 2.1 percentage points to 17.1%. The decline follows May’s eight-month high for cash allocations. June’s decline puts cash allocations below their historical average of 24% for the 31st consecutive month.

Both equity and bond allocations have been fairly stable during the first six months of the year. Since January 2014, stock and stock fund allocations have fluctuated within a 1.9-percentage-point range, while bond and bond fund allocations have fluctuated within a 1.5-percentage-point range. The lack of a big change in allocations is not surprising given the trend we’ve been seeing in the AAII Sentiment Survey and the decline in bond yields. Neutral sentiment toward the direction of stock prices has been above its historical average of 30.5% for 25 consecutive weeks. Yields on the 10-year Treasury note have been trending downward throughout the year and ended June near a 12-month low. While individual investors are neither signaling optimism nor pessimism about the six-month direction of stock prices, prevailing low yields are not making bonds and cash attractive alternatives.

This month’s special question asked AAII members what they are doing to get portfolio income. More than half (53%) said they are holding dividend-paying stocks. Nearly a quarter (23%) said they are using bonds or bond funds for income purposes. Several of these respondents said they are using bond ladders. Approximately 7% realize income from REITs and a nearly even number are using master limited partnerships (MLPs). A sizeable portion (13%) of respondents said they are not doing anything. Many of these members are either still employed or receive pension income.

June asset allocation survey results:

  • Stocks and Stock Funds: 67.0%, up 1.7 percentage points
  • Bonds and Bond Funds: 16.0%, up 0.5 percentage points
  • Cash: 17.1%, down 2.1 percentage points

June Asset Allocation Survey details:

  • Stock Funds: 32.4%, up 2.2 percentage points
  • Stocks: 34.6%, down 0.5 percentage points
  • Bond Funds: 12.8%, up 1.0 percentage points
  • Bonds: 3.2%, down 0.5 percentage points

Historical Averages:

  • Stocks/Stock Funds: 60%
  • Bonds/Bond Funds: 16%
  • Cash: 24%

*The numbers are rounded and may not add up to 100%.

The AAII Asset Allocation Survey has been conducted monthly since November 1987 and asks AAII members what percentage of their portfolios are allocated to stocks, stock funds, bonds, bond funds and cash. The survey and its results are available online at: http://www.aaii.com/investor-surveys.

 

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