Much has been made of the lack of retail participation in the casino equity market rally of the last few months (and few years for that matter). Whether it is a signal of the individual investor's overly anxious nature and only the pros 'get it' or more likely this is the end of the baby-boomer-driven secular savings and investment bonanza is perhaps more likely as a nation of soon-to-be-retirees rotate from massive-drawdown-inducing stocks (no matter how diversified your group of trees, when the tornado hits the forest, they all fall down) to the relative (low-drawdown) safety (and steady income) of fixed income. Nowhere is this 'its different this time' secular shift more evident than in cumulative fund flows.
As Deutsche Bank notes though - in true empirical fashion, we noght add - When rates rise investors are faced with capital losses on their bond holdings. Therefore, it makes sense that bond funds have experienced outflows during every rates up-cycle as capital losses prompt investors to re-allocate out of fixed income. Equities are the main beneficiary of this re-allocation with strong inflows during every period of rising rates; since the 1990s, equity flows have been 60% correlated with the 10yr yield.
However, with debt loads as high as they are the Fed's printing mandate and banking reacharound, it is hard to see rates being allowed to rise in a meaningful enough manner to come close to the kind of pain investors have suffered in stocks over the past decade (and therefore drive the rotation back to scary stocks). Though caveat emptor as perhaps Japan is inching closer to the'moment' when central-bank-provided stability morphs into catastrophic instability as Minsky re-appears to remind the world of reality.