Video: Future Fed Actions and Opportunities in Fixed Income

By 2017-06-13 00:00:00

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Transcript:

Bruce Love, Managing Editor, FA-IQ

“Krishna, what can we expect from the Fed now that we have a new administration?”

Krishna Memani, CIO, OppenheimerFunds

"So, the path for the Fed was determined long before Mr. Trump was elected. As the economy grew and inflation rates got close to 2%, the Fed has been itching to raise rates. Rates are at zero or rates were at zero and they want to get it higher. So they have already tightened a few times and they’re likely to tighten a few more times in 2017 and same thing in 2018 and ’19.

“Having said that, they are being very careful. They want the path of tightening to be very, very gradual. They don’t want to kill the U.S. economy. So we should expect rates to go up, but go up at a very gradual rate.

“As a result of that, fixed income is really not a bad asset class in that environment. It can still provide you good income and the potential losses that you may incur because of rising rates is actually going to be very, very modest. So fixed income has a very important role. Long duration bonds have a very important role to play in the portfolio.”

Bruce Love

"AJ, how are you talking to your clients about fixed income?”

Anupam Johri, Executive Director, Wealth Advisor, Morgan Stanley Wealth Management

"One thing that we have to keep in mind in an environment like that, because we have to look at things like floating rate funds, which are the bank loan funds, or some short duration funds, equity income funds. So we have to emphasize a few things out of the whole portfolio. But, overall, my message to my clients is always the same, that they have to maintain diversification. As Krishna had mentioned that all the different things in the portfolio have still a role to play in different environments. And I also think that the rate rise is going to be gradual, so most of the funds should be able to absorb the capital losses that might come.

“But, overall, it is an important part of conversation that we are having and we are making some minor adjustments to the portfolio as we go on.”

Bruce Love

"Rocco, what’s your message to clients regards fixed income bonds, interest rates?”

Rocco Papandrea, Senior Vice President-Wealth Management, Merrill Lynch

"Well, we’ve definitely been in a very low interest rate environment for a very long time. Finally, now, clients on the very short end can start earning money on their cash. So clients, we have been very focused in terms of making sure that we’re taking advantage of those increases in interest rates, just to get them some sort of return. And, as rates continue to rise, we will continue to make adjustments to their portfolio to make sure that they’re aligned with their specific income needs and goals.

“What we found is, we think in this slow, measured pace in a rising interest rate environment, a barbell approach to laddering fixed income may work very well as compared to a targeted bullet approach. And we think that clients will be able to benefit from this higher yield and increase their cash flow in their portfolios.”



Mutual funds are subject to market risks and volatility. Shares may gain or lose value. Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and the Fund’s share prices can fall. Diversification does not guarantee profit or protect against loss.

These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.

Carefully consider fund investment objectives, risks, charges and expenses. Visit oppenheimerfunds.com or call your advisor for a prospectus with this and other fund information. Read it carefully before investing.

OppenheimerFunds is not affiliated with Financial Advisor IQ, a Financial Times company.