Pacific Investment Management Co.’s Jerome Schneider, whose main fund beat 99 percent of its peers in 2015, says bond traders shouldn’t write off Federal Reserve interest-rate increases this year.
Schneider and his colleagues predict policy makers will raise their target more than once in 2016 as U.S. economic growth remains stable and wage gains pick up. The futures market on Wednesday took a gloomier view: A report showing unexpected weakness in service industries led traders to boost bets that the Fed will stand pat for all of 2016.
“The fundamentals of the U.S. economy remain fairly intact,” Schneider, 42, said in an interview in New York. “Not to say we are going to have successive Fed hikes. It will be under four hikes.”
Investors should brace for heightened volatility in money markets, said Schneider, who oversees $180 billion of short-term assets from Newport Beach, California. With global financial conditions worsening and the Fed signaling that policy decisions will depend on economic data, traders will have to keep adjusting their outlook on rates. The central bank’s use of an untested toolkit to engineer policy changes may exacerbate the turbulence, he said.
Schneider’s $13.7 billion Pimco Short-Term Fund gained about 1.4 percent last year, while rivals in the same category were flat on average, data compiled by Bloomberg show. The performance helped lead Morningstar Inc. to name him and his team fixed-income fund manager of the year last week. The fund has had a rougher start to 2016, losing about 0.5 percent and trailing 90 percent of its peers.
The “performance in 2015 was a pretty notable feat given returns were pretty low across the board in the bond market and it was a difficult year for most managers,” said Eric Jacobson, a senior analyst at Morningstar.
The accolade for an investor in a category that’s better known for capital preservation than outsize gains reflects the fund’s track record and ability to outpace peers in a year when many money managers in longer-maturity debt struggled to post positive returns, according to Morningstar.
The Pimco Short-Term Fund’s 2015 return compared with a 0.9 percent gain for Treasuries, according to Bloomberg indices. U.S. government debt has returned 2.5 percent this year.