Should we believe the 'great rotation' hype?

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James Foster, co-manager of the Artemis Strategic Bond fund, asks to what extent investors' love affair with bonds is beginning to pall.

The markets are awash with stories highlighting the potential for a ‘great rotation’ out of bonds and into equities. We have had a 30-year run in bonds, so is now the time this will start to reverse, and equities will benefit? The reasons for believing so are quite compelling. The biggest driver of the extended bull run in bonds has been falling inflation. Since the 1980s, when inflation peaked at over 15% in the UK, it has declined sharply. Even throughout the 1990s there was broad scepticism as to whether or not inflation would stay low. Bond yields stayed significantly above inflat...