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An Equities Comeback Could Take Decades

Waning in popularity among institutional and retail investors, stocks won’t easily shake their reputation as money losers. The flight from equities hurts the real economy by making it tough for companies to raise capital.

When the bond market blows up, investors will pile back into equities — Robert Buckland has heard that one before. “It’s more complicated than that,” says the London-based chief global equity strategist at Citi Investment Research & Analysis. “If people think equities are these horrible, scary things that lose you half your money every seven years, it’s going to be tough to get them back.”

Although stock markets have mostly recovered from 2008, many investors still shun them — and may keep doing so. Buckland isn’t bearish on equities, but he doesn’t expect a big comeback anytime soon. As he and his colleagues noted in a recent report, U.S. equity mutual funds have seen outflows for the past five years after inflows peaked at $309 billion in 2000. It also helps to remember that equities were once a minority asset class. In 1952 private U.S. pension funds held 17 percent of their total assets in stocks and 67 percent in bonds. Those numbers reversed over the next half century, but the tech wreck and two ruinous bear markets smashed the so-called equity cult. Last year the same pension funds were 52 percent equities and 35 percent bonds.

Disdain for equities hurts the real economy by making stock markets less competitive places to raise capital, Buckland warns. He thinks the only hope is that investors will forget their equity losses: “It could potentially take a generation for those scars to heal.”

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