Buying equity income over bonds is 'no brainer', BoA says

Investors' wariness of shares means buying equity income over bonds is a "no brainer", Bank of America said.

BoA said its sell side indicator survey was unchanged after a pause in rising equity sentiment for the second month in a row.

The indicator, which surveys analysts on their sentiment towards stocks, is neutral between 'buy' and 'sell', BoA said. This suggests shares will make gains because when the indicator has been this low or lower, returns in the following 12 months have been positive 94% of the time, the bank said.

"Sentiment on stocks is far from the euphoric levels one sees at the end of bull markets," BoA strategist Savita Subramanian wrote.

Appetite for equities has fallen sharply in recent years due to an ageing population choosing fixed income and confidence shaken by bit hits from the dotcome bubble, the financial crisis and coronavirus, BoA said.

Stocks are a "no brainer" investment over bonds with the yield of the S&P 500 at a record 70-year multiple of bond yields and most dividend cuts made, BoA added.

"This 'hot stove' mentality that investors have towards stocks (with the exception of a handful of tech stocks, which have grown crowded and democratised) is a behavioural bias that creates an opportunity to purchase equity income at relatively low prices - especially relative to bonds," Subramanian wrote.