For the first time in its 17-year history, all five economic scenarios in Stein Roe & Farnham's long-term outlook for securities prices are signaling better returns ahead for bonds than stocks.
The average reading of the scenarios suggests bonds will do twice as well as stocks over the next five years and with less risk.
The SteinRoe Balanced Fund, formerly the SteinRoe Total Return fund, was just taken over by Harvey Hirschhorn, the firm's chief economist. He monitors and updates the fund's asset allocation using the technique. The fund has 60% in equities. To benefit from a fall in interest rates, the 40% in fixed income has an average duration of more than five years.
No matter whether the environment is one of high inflation or deflation, bonds will do better than equities.
Each of the extremes has only a 5% likelihood. But the inflation scenarios in the midrange also favor bonds.
"Relative prices have shifted a lot this year. Stocks look no better than fairly priced but bonds offer some good values .... Markets move so fast that, if you aren't already in the right place when changes start, you are likely to miss most of the benefits," said Mr. Hirschhorn, in a report to shareholders.
Marlene Givant Star