In the current volatile markets, there are opportunities for investors and financial advisors in the fixed income space that will allow them to avoid the turmoil that is going on, according to Commonwealth portfolio manager Peter Essele.
“It has the least amount of negative sentiment,” Essele, head of portfolio management for Waltham, Mass.-based Commonwealth Financial Network, said of fixed income offerings. “It is a good entry point for investors because it presents a good long-term investment option.”
In a published outlook for fixed-income offerings for 2022, Essele said fixed-incom strategies that should be appealing to investors include long-term, high-quality funds and high-yield funds.
High-yield funds have a strong correlation to equities and are currently trading at $0.80 on the dollar, meaning when they mature, the holder will receive an increase on their investments, he said. Long-term, high-quality offerings are underselling because of high inflation, but as rates moderate investors will be looking for long-term yields, he said.
One of the reasons Essele feels opportunities lie ahead for fixed-income investors is that he feels inflation is not as much of a headwind as is being portrayed.
"There’s strong evidence to suggest that inflation has peaked," he wrote in his outlook report. "Aside from food and energy, the core components of inflation appear to be rolling over."
He also noted that many of the categories that drove inflation higher throughout the pandemic—including used cars and trucks, home furnishing and housing—are now starting to see price moderation as inventories build and demand slows.
“I don’t think that a high price in the food markets will be enough to hijack inflation,” he said.
With gas prices on the decline, Essele said that it is only a matter of time before food prices follow.
Another ramification of inflation is the recent actions of the Federal Reserve, which is considering further rate hikes in the coming weeks.