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What is The Great Rotation?

Definition and Investor Strategies


Definition: The Great Rotation refers to an investment trend of transition out of bonds and to stocks, primarily in the year 2013. This movement has also been called "a flight to equities."

When large numbers of investors shift from one market segment or security type into another market segment or security type, the collective movement or trend is often called a "rotation." This rotation can be in and out of sectors or it may be between broad asset classes (stocks, bonds and cash).

The long-term strategies for "the market," including individual investors, pension funds and insurance funds, began shifting in 2012 and 2013 because of the extreme low yields for bonds and an anticipated end to a 20-year bull market for bond prices. With the Federal Reserve ending its Quantitative Easing (the purchase of Treasuries to push interest rates lower) the market environment was such that bonds could no longer offer acceptable yields, nor was there an expectation for increasing prices. Therefore investors looking for income needed to use alternatives, such as dividend mutual funds. Also, market timers and short-term investors wanting to cash in on the anticipated shift made similar moves to take advantage of a rise in stock prices.

Long-term investors, or what we may call buy and hold investors, should be careful of such market timing strategies. History has shown that a diversified mutual fund portfolio is the best means of accomplishing long-term goals, such as retirement and education savings, for most investors.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as tax advice or investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.

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