Government bonds are considered most overvalued relative to fair value on a one-year time horizon according to the CFA UK Valuations Index, a newly launched quarterly survey of UK-based investment professionals by the CFA Society of the UK (CFA UK)

Gilts (pictured) and Treasuries have been the star performers over the past couple of years. CFA UK survey results suggest this could be about to change.

The findings are broadly reflective of the emerging trend in ETF flows, which shows a slight uptick in equity allocations and a moderation in fixed income, and could signal the start of a period of outperformance for inverse, or short, bond ETFs.

Asked whether government bonds currently represent fair value, 72% suggested that they are somewhat overvalued or very overvalued compared to only 12% who view them as somewhat undervalued or very undervalued.

This contrasts with the views offered on equities, where just 27% believe there is overvaluation. Developed market equities were deemed slightly more undervalued than emerging market equities, according to 47% against 43% respectively.

Will Goodhart, chief executive of CFA UK, says: “over the long run, markets are efficient and investors broadly rational. However, at any single point in time, markets can temporarily depart from fundamental value – our research indicates which asset classes our members think may no longer offer significant value, based on current prices, and others where there might be more value for new investments.”

“The current dislocations appear to be most likely attributable to the continued uncertainty about the global macroeconomic outlook and the prospects for inflation and interest rates.”

Opinions from respondents were mixed for the valuations of corporate bonds, with a relatively even split of responses citing them both as undervalued, fair value or overvalued. However, the results appear to suggest that gold, a safe haven of 2011, is now relatively fully valued.

The views of CFA UK members broadly reflect a developing pattern in recent ETF flow data, which shows that investors have begun to reduce allocations to gold and increase exposure to equities, albeit cautiously. There has also been a moderation of flows into government bond ETFs.

According to Morningstar, precious-metals ETFs suffered the largest outflows of any asset class in December 2011, with SPDR Gold Shares ETF (GLD) alone seeing an outflow of $2.2bn.

Meanwhile, SPDR S&P 500 ETF (SPY) ($4.9 billion), iShares Russell 2000 Index ETF (IWM) ($1.4 billion), and iShares MSCI EAFE Index ETF (EFA) ($1.0 billion) topped the list of ETFs with the largest monthly inflows in December (US data, inflows in brackets).

According to a CFA UK Survey, 72% of members thought that Government Bonds are overvalued. This contrasts with the views offered on Equities, where just 27% believe there is overvaluation.

Euronext Paris listed:

Reflect the performance of a notional short position in the Markit iBoxx $ Treasuries Index.
TER 0.14%, Euronext Paris listed, UCITS compliant.

Amundi Short US Treasury 1-3 Daily ETF

Amundi Short US Treasury 3-7 Daily ETF

Amundi Short US Treasury 7-10 Daily ETF

US-listed Inverse or Short US Treasury ETFs/ETNs:

1 x Leveraged

iShares Barclays Short Treasury Bond ETF

ProShares Short 20+ Year Treasury ETF

ProShares Short 7-10 Year Treasury ETF

Direxion Daily 7-10 Year Treasury Bear Shares ETF

Direxion Daily 20 Year Plus Treasury Bear Shares ETF

iPath US Treasury 2-year Bear ETN

iPath US Treasury 5-year Bear ETN

iPath US Treasury 10-year Bear ETN

iPath US Treasury Long Bond Bear ETN

2 x Leveraged

ProShares UltraShort 20+ Year Treasury ETF

ProShares UltraShort 3-7 Year Treasury ETF

ProShares UltraShort 7-10 Year Treasury ETF

3 x Leveraged

PowerShares DB 3x Short 25+ Year Treasury Bond ETN

Direxion Daily 7-10 Year Treasury Bear 3x Shares ETF

Direxion Daily 20 Year Plus Treasury Bear 3x Shares ETF