Oct 15 Reuters - Global investors are looking harder for pockets of opportunity and becoming more selective in their fixed income and equity allocations, some fund managers told Reuters, anticipating volatility caused by quicker inflation and uncertainty around central bank policy.
There are a lot of moving parts both globally and within the United States that should create some volatility and opportunity heading into 2022, Simon Peters, head of U.S. Multi-Sector Fixed Income with asset manager Schroders, told the Reuters Global Markets Forum, adding stagflation is increasing as a potential risk
Sehr few markets look cheap right now; there are pockets that offer value but those are fewer and further between, she said, pointing to corporate and municipal debt that should benefit from future economic reopenings and selected emerging market bonds.
Similar to Amundi, Ashley Fagan, global head of ETF, Indexing, smart beta strategic clients, told the Forum that she expects higher macroeconomic volatility and more inflation, advocating hedges such as gold to protect portfolios.
While remaining pro-risk, Schroder's Hornby recommends a defensive position on U.S. and European government debt, and Fagan recommended Moderating risk levels across fixed income portfolios.
Fagan said investors are cashing out of the U.S. broad market indexes and shifting to high quality stocks and investments, and in fixed income they are preferring shorter-duration bonds.
Most investors expect the U.S. Federal Reserve to announce a tapering of its asset purchases at its November meeting - a move Hornby sees already priced into bond markets - but more uncertainty surrounds when the central bank will hike interest rates.
Both U.S. and UK government bond yield curves have flattened the past week, indicating concern over how policymakers will balance rising inflation with fragile economic recovery.
Hornby sees the Fed more flexible and holding accomodative policy longer than markets currently expect, and so yield curves are likely to steepen and the benchmark 10-year yield could trade closer to 1.75%.
Bond funds focused on the inflation-protected debt have clocked their biggest inflows over the past week in more than two months, while BlackRock and Vanguard both announced the launch of more selective bond ETFs.