After rally, corporate bonds lose favor versus stocks

By Dena Aubin - Analysis

NEW YORK, June 5 (Reuters) - Once the hands-down favorites over stocks, U.S. corporate bonds may not be such a clear-cut choice after frenzied rallies in both markets, money managers say.

Though still star performers in the bond world, corporate bonds no longer sport the record high yields that made them so popular about six months ago.

The stock market, meanwhile, has staged a massive comeback since March, and more care is needed to find undervalued names that can weather a slow-growth economy, strategists said.

"I think you're going to see individual names become far more important," as both markets return to more normal conditions, said Stephen Wood, New York-based senior portfolio strategist at Russell Investments. "It's going to be more a name-by-name, active management environment than it will just be a broad asset class or thematic performance."

In late March, an overwhelming 67 percent of money managers surveyed by Russell Investments were bullish on corporate bonds, a higher score than any other asset class, including U.S. large-cap equities.

Corporate bonds were seen as a solid bet because the credit crisis had punished good companies together with the bad, sending bond yields to historic highs of 9 percent or more. Amid fierce buying, those yields have dropped to about 6.5 percent, according to Bank of America Merrill Lynch data.

DIVIDEND YIELDS A DRAW

Peter Andersen, a portfolio manager at Congress Asset Management in Boston, said it's easier to find undervalued stocks than bonds.