AAII Sentiment Survey: Equity Allocations Reach Highest in 6 Years

Equity allocations nearly hit an six-year high last month, according to the May AAII Asset Allocation survey. Cash allocations, meanwhile, fell to a level not seen since 2010.

Stock and stock fund allocations rose 3.5 percentage points to 65.2%. This was the largest allocation to equities since September 2007. It was also the fourth time in five months that stock and stock fund allocations were above their historical average of 60%.

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Bond and bond fund allocations declined 1.6 percentage points to 18.1%. This was just the second time in the past 13 months with a fixed-income allocation below 19%. Even with the decline, bond and bond fund allocations were above their historical average of 16% for the 47th consecutive month.

Cash allocations fell 1.8 percentage points to 16.7%. Since hitting an 18-month high of 22.8% in March, cash allocations have declined by a cumulative 6.1 percentage points. May’s allocation was the smallest since November 2010. May was the 18th consecutive month with a cash allocation below its historical average of 24%.

Impacting the numbers were new highs in stock price and a decline in bond prices. AAII members expressed a wide variance in their short-term expectations for stock prices throughout the month, though bullish sentiment reached its second-highest level of the year during the seven-day period ended May 22…

Frustration with yields and potentially a sense of missing out on further gains in the market may have prompted some individual investors to move money out of cash.

Last month’s special question asked AAII members if they are holding short-, intermediate- or long-term bonds. Just under half of all respondents (47%) said they are holding intermediate-term bonds or bond funds. Concerns about rising interest rates was the primary reason given as to why, though many said intermediate-term bonds offered a good mix of higher relative income and reduced relative risk. Approximately 38% of respondents said they were invested in short-term bonds or bond funds. Concern about rising interesting rates was the biggest reason given as to why, though some respondents cited the increased liquidity that short-term bonds offer. Just 7% of respondents said they held long-term bonds. Respondents who said they held more than one type of maturity (e.g. short- and intermediate-term) were counted twice.

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May AAII Asset Allocation Survey results:

· Stocks/Stock Funds: 65.2%, up 3.5 percentage points

· Bonds/Bond Funds: 18.1%, down 1.6 percentage points

· Cash: 16.7%, down 1.8 percentage points

May AAII Asset Allocation Survey details:

· Stocks: 32.4%, up 2.9 percentage points

· Stock Funds: 32.8%, up 0.6 percentage points

· Bonds: 3.9%, up 0.1 percentage points

· Bond Funds: 14.2%, down 1.7 percentage points

*Due to rounding, the numbers may not add up to 100%.

Historical Averages

· Stocks/Stock Funds: 60%

· Bonds/Bond Funds: 16%

· Cash: 24%

Charles Rotblut is the author of the new book Better Good than Lucky: How Savvy Investors Create Fortune with the Risk-Reward Ratio. The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at http://www.aaii.com/sentimentsurvey