For the last five years, the S&P 500 Index has been climbing at a rate of more than 15 percent a year and everybody thinks we are living in a low-return world. “How in the world are we in a low-return market environment?”  asked Richard Bernstein, CEO/CIO of the eponymous investment management firm, noting this is already the second-longest bull market in history.

He told reporters at a luncheon sponsored by Eaton-Vance that the seven-year-old bull market isn’t “close to the end.” Before starting Bernstein Advisors in 2009 and launching several mutual funds with Eaton-Vance, he was the top-ranked equity market strategist on Wall Street for most of the previous two decades.

In 2012, Bernstein predicted that U.S. equities were in a bull market that might exceed the great bull market from 1982 through 1999. In 2013, the S&P 500 rose 33%.

But a huge gap between perception and reality still exists. Pessimism, coupled with a lack of euphoria, is still pervasive.

It would be one thing if the perception of a low-return market were simply held by retail investors still shell-shocked by the financial crisis. Amazingly, the misperception is widespread among sophisticated investors at endowments, pension funds and hedge funds.

Indeed, the rise of passive management may be partially attributable to major-league blunders in various sectors of the larger asset management business. “Why haven’t hedge funds been levered long?” Bernstein continued. After all, they exist primarily to capitalize on micro- or macro-economic market anomalies, or so they claimed.

Instead, most hedge funds have been hunkered down in their bunkers with short positions and other purported hedges like gold. The upshot is that big institutional investors have fled from them like they were skunks at the garden parties. Many once-famous hedge funds have retreated or folded completely.

“Find me an investor who says I can’t get enough equities,” he declared. Or find an investor who wants to leverage themselves up in equities.

The probability of surprises to the upside remains high, Bernstein said. At this stage in the market cycle, a transition from growth to value could be expected as a natural phenomenon to extend the bull market.

In Bernstein’s view, there are two types of bull markets. One type, like the current bull market, is led by a boom in profits. The other is driven by price-to-earnings multiple expansion.

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