Assets swing like a pendulum do — but just how far?

The fourth year of the great bond buying jamboree looks as if it's about to come to an end. Thus, it seems like a good time to take a look at just how far investors' portfolios have swung toward fixed-income and away from equities. Investors' bond allocation, which includes both mutual funds and exchange-traded funds, has climbed to 26% today, double what it was in October 2007, when the stock market reached its peak, according to Morningstar Inc. This year alone, more than $220 billion has flowed into bond funds, bringing the total amount of fixed-income assets to $2.4 trillion. On the other side of the ledger, the allocation to stocks has fallen to 37%, down from 48% at the market's peak. That downsizing has occurred even as the markets have rallied to within bowshot of the October 2007 highs. Through the end of October, investors have pulled almost $85 billion out of U.S. stock funds, dropping the total amount of assets to $3.4 trillion, according to Morningstar. The big headwinds facing the economy — whether it's the fiscal cliff, a recession in Europe, or a slowdown in China — have clearly scared the most risk-averse investors away from stocks. That same aversion to risk isn't being seen on the bond side, however. Traditionally risky areas of fixed-income, such as high yield bonds, emerging markets debt, multi-sector and nontraditional bond funds, have themselves accounted for $80 billion of inflows.