Several clients have sold half of their bond portfolios over the last two months and invested the proceeds in large-cap dividend-paying U.S. stocks, said Larry Palmer, a managing director for Morgan Stanley Smith Barney Private Wealth Management. Palmer's clients have an average account size of about $8 million and his team manages more than $1 billion.

"There's a margin of safety they have, emotionally, in those high-quality blue-chip names," said Palmer, who's based in Los Angeles. "All the advisers here are having the same dialogue with their clients," he said.

Income investors may prefer shares of companies such as Abbott Laboratories to government bonds, said Alan Zafran, co- founder of Los Angeles-based Luminous Capital. Abbott shares yield 3.8% compared with the 10-year Treasury yield of 3.5%. Luminous manages about $4 billion for about 250 families.

Stemming Losses

Shares of the largest companies typically lose less than other stocks in market downturns, according to Grantham. From the market peak of October 2007 through its low of March 2009 the S&P 100 lost 54%, compared with the Russell 2000 Index's loss of 59%.

Municipal bonds may hold more appeal for contrarian investors than large-cap stocks, according to David Carter, chief investment officer of New York-based Lenox Advisors, which manages $1.5 billion. Investors withdrew $974 million from municipal bond funds in the week ended Feb. 16, the 14th- straight week of withdrawals, according to Lipper. January outflows for muni funds totaled $13 billion, according to Morningstar. The S&P 100 is up 4.3% since the beginning of 2011 compared with a 0.3% return for the Bank of America Merrill Lynch Municipal Master Index, which tracks investment-grade bonds.

'Trading Like Junk'

"Munis are trading like junk bonds, but they're not junk bonds," said Lew Altfest, chief executive officer of New York- based Altfest Personal Wealth Management, with $700 million in assets under management. Altfest, who advises clients with assets of $1 million or more, has been purchasing individual munis such as revenue and general obligation bonds as mutual funds have had to "disgorge" their holdings to cope with outflows, he said.

Investors' newfound enthusiasm for large-cap stocks could become worrisome if shares continue to gain momentum, said Jonathan Satovsky, founder of New York-based Satovsky Asset Management, which manages $380 million for about 200 families. "The fund flows are perpetually wrong," he said.

The current market cycle likely has six or more months to run before investors need to become concerned about a reversal, Satovsky said.