It’s a good environment for active bond investing, with lots of opportunities to add beta, a BlackRock money manager argued on Tuesday.
That’s provided one isn’t spooked by the Fed raising rates, Rick Rieder, BlackRock's chief investment officer of global fixed income, said during a BlackRock roundtable in Manhattan on Tuesday.
Rieder, who predicted that the recent Fed rate hike was the first of several rate increases this year, said the “knee-jerk reaction” of some to the Fed increase is fear. However, he argued that the Fed was moving away from the emergency conditions that followed the crash of 2008. Now, he said, it is merely “approaching normalcy and equilibrium.”
“There’s a very different scenario when the Fed tightens policy from negative real rates, from a zero percent fund rates to two percent, than when you’re going from four to six percent,” he added.
Conditions are now very good for fixed income and the economy, with the materials, or goods, component of the economy is expected to do well after lagging the services component, he said.
“The goods economy is growing again,” Rieder said. “This is a really big deal.” That is because the economic growth of the past three years has been almost completely dependent on growth in the services sector.
Alpha in bonds will not be difficult to find in this environment despite the Fed rate hikes, he said.