|
 The managers, who spoke to Reuters on the sidelines of the
Morningstar Investment Conference in Chicago, said they worry about
an anticipated rate hike by the Federal Reserve later this year,
which would be the U.S. central bank's first since 2006. Some also
said they are positioning themselves to buy bonds if prices prove
attractive after such a hike.
Laird Landmann, manager of the $66 billion Metropolitan West Total
Return bond fund, said the fund has sold out of a $1 billion
position in emerging market debt over the past year on concerns
those countries' economies could be hurt as money left for
higher-paying U.S. bonds.
"If you're overweight, you're going to get hammered," he said during
a panel discussion, referring to managers with too much risk.
With Fed policy makers having indicated they plan to raise interest
rates once they deem the U.S. economy strong enough, fixed-income
managers must predict what would such hikes would mean to the prices
of bonds in their portfolios.
A plunge in values could lead to net withdrawals by investors and
perhaps force managers to sell to meet redemptions.
Through June 24 investors added $69.3 billion to U.S. bond funds,
according to data from Thomson Reuters' Lipper unit. That included
$60.6 billion in net deposits to taxable bond funds, a major sector
that would face volatility if bond investors grew nervous.
Executives from Pacific Investment Management Company LLC, known as
Pimco, said they have taken steps like building up liquidity in
their funds, which can entail selling bonds and holding on to cash.
LOOKING TO SHORTER DURATION
Marc Seidner, a member of Pimco's investment committee, said the
average duration of holdings in the Pimco Unconstrained Bond Fund
has been cut to a negative 0.75 year since last year by using short
positions. A year ago it had a positive duration of about three
years.
Seidner said he is looking to protect the fund from rate hikes but
also wants to be ready to jump in if those hikes lead to buying
opportunities. "That's where you have to have some dry powder," he
said.
[to top of second column] |
Rick Rieder, chief investment officer of fundamental fixed income
for BlackRock Inc, said BlackRock also has cut duration in some
cases, betting that Fed interest rate hikes will mainly affect bonds
with maturities of three years or less.
Duration is a measure of a portfolio's sensitivity to interest rate
changes: the greater the duration the more that higher interest
rates will hurt a fund's value.
Darrell Riley, a member of T. Rowe Price’s Asset Allocation Group,
which oversees about $200 billion, said the group has been adding
high-yield bonds over the past year because of their shorter
duration.
Not all managers are pulling back. John Bellows, portfolio manager
for the $14.7 billion Western Asset Management Core Plus bond fund,
said it has maintained a longer duration than peers and kept a
position in emerging markets debt. Western expects only moderate
rate increases that will leave those bonds still paying higher
yields than U.S. debt, he said.
Other managers seemed more defensive. Janus Capital's chief
investment officer for fixed income, Gibson Smith, said funds like
Janus' Flexible Bond Fund, have been adding safer instruments like
U.S. Treasuries.
"Knowing we're in the late stage of the credit cycle, it warrants
being a little more cautious," Smith said.
(Reporting by Ross Kerber; Editing by Richard Valdmanis and Leslie
Adler)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
