Investors have generally been underweight shares since the global financial crisis, but they are gradually switching funds from bonds to stocks.
According to Credit Suisse, when a switch in asset allocations occurs, the process can take 33 months. The current rotation has only been going for seven months, so it's not too late if you've been contemplating changing your allocation as well.
As revealed in yesterday's Australian Financial Review, Credit Suisse has come up with 11 blue-chips with sustainable dividends that could replace income from bonds.
11 companies to watch
Challenger (ASX: CGF) is perhaps the best example of Credit Suisse's criteria. It is largely a provider of annuities and guaranteed retirement streams. It provides products aimed at investors seeking certainty in cash flows, with protection against market inflation and longevity risks.
Four of the 11 companies operate in the mining sector. Rio Tinto (ASX: RIO), Fortescue Metals Group (ASX: FMG) and Arrium (ASX: ARI), until now, have not been associated with yield plays. However, by reducing capital expenditure, free cash flows are likely to increase returns to shareholders. Arrium is also planning a demerger in 2015 to create additional value.
Mineral Resources (ASX: MIN) is a mining services and processing company. It also has 100% ownership of iron-ore producer Polaris Metals. It has many growth options and positive leverage to the iron ore price.
Four of the companies operate in the banking sphere — National Australia Bank (ASX: NAB), Bank of Queensland (ASX: BOQ), Macquarie Group (ASX: MQG) and Suncorp (ASX: SUN). All have varying levels of exposure to funds management and will benefit from escalating fund inflows. The strongest IPO activity in history last month ($11.8 billion), is evidence of this uptick in investing momentum.
Myer (ASX: MYR) is another selection, with a FY 2014 forecast yield of 6.5% and is a turnaround growth story. The utility stock that distributes electricity, Spark Infrastructure (ASX: SKI), is a relatively stable investment with a current 6.42 % dividend yield.
Foolish takeaway
The quant modeling research undertaken by Credit Suisse is a great way to screen potential investments for those looking to switch from bonds to shares. Medium- to long-term investors should be more than comfortable with 7 of the 11 stocks. In my opinion, investors should hold off on the banking stocks, due to near-term valuation concerns.
