What to know about shift from equities to 'safety' of bonds

Fuelled by geopolitical factors and general economic uncertainty, some investors are shifting their money away from equities into what they perceive to be the safety of higher-quality bonds.

In a single week in October, funds focused on buying US stocks suffered US$6.2bn in outflows.

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Rather than merely following suit, however, investors should take a more nuanced view, according to Mathieu Saint-Cyr, head of asset management at Geneva Management Group (GMG).

He believes that equities still have serious potential value, but that, at the same time, emerging asset classes shouldn't be ignored.

In his view, there are several factors at play when it comes to investors moving their money out of equities.

The first is reduced growth in the global economy, with the World Trade Organisation (WTO) lowering its international trade growth forecast to 1.2%, down from 2.6% in 2019.

"Investors are also worried about a potential recession in the US and international trade-war tensions,” he points out. "And, with the S&P500 and large international indices trading at record highs, some fear a downturn is inevitable."

Francois Botta, investment analyst at GMG, believes there is still reason to consider holding on to carefully selected equities.
"Some economic data is still very positive - US unemployment, for example, is at its lowest point in over 50 years - so there are still great opportunities to be found," he says.

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As such, he believes investors shouldn't simply "follow the herd" when it comes to taking money out of equity markets, but rather re-engage with a fresh view.

Saint-Cyr adds that investors are no longer constrained to equity markets when looking for sustained growth.

"Another area for possible sustained growth can be found in innovative technology companies, such as those operating in the fintech and blockchain spaces, rather than blue chips," he says. "These and other niche markets can be more resilient during challenging times."

Impact investing is another great example of resilient diversification during stressed markets, according to Saint-Cyr. This is where investments are made into companies, organisations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.  

Impact investment portfolios generally take a longer-term view, making them less susceptible to sudden economic shifts.