Should Advisors Rebalance into Equities for the New Year?

Many passive money managers rebalance at least annually based on a schedule rather than an analysis of current conditions.  With equities being down so much and government bonds being up so much one would expect that those allocations will be adjusted at the beginning of the year, but Mohammed El-Erian is encouraging advisors to move up the capital structure, rather than reallocate to equities.

 

In a recent address to institutional investors on December 2nd, the PIMCO chief said that “There is no reset button” to cure the credit crisis.  “The dislocation is occurring at the heart of the financial system – not at the periphery – and it follows that the normal circuit breakers will not work.” John Paulson head of top performing hedge fund Paulson & Co. agrees that equities are not the place to be.  Paulson said on December 3rd that the process of de-leveraging is a little more than half complete, but that over the next two years, he sees the “best opportunities ever” in three distressed markets: mortgages, banking and finance, and high-yield debt.