Delivering Alpha

Expected Rotation Out of Bonds Rattles Hedge Funds

Mary Callahan Erdoes
Source: JPMorgan Chase & Co.

A mass investor rotation out of bonds, expected earlier this year, has finally materialized—to the dismay of some hedge funds that say they now need bigger cash stashes and an increased appetite for risk in order to trade successfully.

During the month of June, fixed income allocations fell to a four-year low, according to the American Association of Individual Investors, as major bond fund managers like Pimco experienced record withdrawals for the second quarter. That pullback sent places like emerging markets and high-yield bonds reeling—just as the Federal Reserve signaled plans to taper its easy-money policies within the coming years. Benchmark bond yields ticked up on that news, and in an unexpected twist, the stock market nosedived as well.

It all amounted to heightened volatility in the markets after a sustained bull run, raising questions about the stock-picker's market that Delivering Alpha presenters, such as Leon Cooperman and Mary Callahan Erdoes, talked about at last year's conference co-sponsored by CNBC and Institutional Investor.

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