Portfolios should not be tied to a particular percentage of stocks versus bonds, but should be in the hands of tested money managers who can take an active role in a volatile market, according to two leaders in the financial field.
Money managers should bring active asset allocation to the table to add value to their services, the pair says. The discussion was part of a series of webinars sponsored by Prudential.
Ed Keon, managing director and portfolio manager at QMA, an investment management firm based in Newark, N.J., and Brian Ahrens, executive vice president and director of the Strategic Investment Research Group of Prudential, also based in Newark, N.J., discussed the market and a manager’s role in it.
Keon notes that QMA is currently derisking its portfolios by pulling back from a 60 percent stocks/40 percent bonds ratio to a more neutral position because of the recent market volatility and ongoing problems with China, the second biggest economy in the world next to the United States.
“The problems of China will find their way into the economies around the world” because of its size, Keon says
Interest rates are going to remain low for a longer time period than had been predicted, as indicated by the Federal Reserve Board’s recent decision to push back any rate increase. In part because of that, fixed income allocations will be more attractive for the near future, Ahrens says.
Bonds are going to remain at about a 2 percent return and stocks at 6 percent to 7 percent, for an average portfolio growth of around 5 percent.
“We are using indexes or structured equity products to build a portfolio now, and then we will use active managers around that whether it is a bull or bear market,” Ahrens says.
Keon says managers should employ a flexible, multi-asset strategy to allow them to find the best variety of asset classes and pockets of value in the markets.
Commenting on the current low oil prices, Ahrens says most managers are now underweighting oil investments, but Keon notes that energy investments can still hold a place in a diversified portfolio.