Pimco have said that while rhetoric of a 'great rotation' continues to sweep the market, Australian institutional investors have been moving out of fixed income prior to the recent equity rally.
Pimco have said Australia never felt an initial move from equity to bonds in order to experience a great rotation back into the equity market, despite renewed investor confidence.
"We would argue though in Australia that we never saw that initial rotation out of equities into bonds," Pimco head of global wealth management Peter Dorrian told InvestorWeekly.
"What we've observed over quite a long period of time from the point of view of Australian institutional investors is a great rotation, but it's a great rotation out of bonds, not into bonds.
"The average level of investment in the fixed income space from the point of view of Australian investors has declined quite significantly over the last 12 years."
The asset manager said that the notion of a 'great rotation' has flowed from the northern hemisphere, despite the Australian market having different conditions.
Mr Dorrian said in 2007 where bonds markets saw particularly strong returns, the Australian institutional investor space saw a continued decline in exposure to fixed income.
"The great rotation is in the northern hemisphere, particularly amongst larger pension funds where there has been a big switch out of growth assets and into defensive assets over the last five years, with all the volatility in risk markets," Mr Dorrian said.
"They're calling that the great rotation that occurred from bonds to equities, and now they're saying that with equity markets starting to look more promising, we'll see another rotation out of bonds into equities.
"But facts in Australia are quite different."
While the equity markets are continuing their rally, Mr Dorrian said investors need to weight up the price of stocks and their expected return when deciding on asset allocation.
"Particularly in the Australian market, it's been nine months where we've seen a relatively small number of stocks do incredibly well in terms of changes in their pricing," Mr Dorrian said.
"When a stock is up 40 or 50 per cent, there is always going to be a pause while people work out whether or not the earnings that the stock is producing is going to rise by a sufficient level to warrant the run up in its price."
