Landis says that since managers can’t reliably predict the direction of interest rates, Wavelength’s strategies hedge away macroeconomic risk to attempt to provide returns that are uncorrelated with traditional fixed income. He balances out expectations for growth and inflation to avoid making bets on the rate and credit cycles.
Wilson, on the other hand, runs a more opportunistic, unconstrained and fundamental fixed-income strategy for Voya.
Wilson said he is concerned about negative rates globally, but does not believe that they will come to the U.S.
“It’s a negative tax on savings, and we don’t want them,” said Wilson. “European banks are going to charge you negative rates, and they’re robbing disposable income from European savers. The intention [of low and negative interest rate policy] was to spur credit creation, but to a certain degree it’s hollowed out the financial system.”
Despite low interest rates, slowing growth and difficulty in generating returns, Lapin said that there are still good reasons to feel optimistic about the opportunities in fixed income.
“I don’t think the fixed-income market is broken. I think it’s just responding to what the economic environment is,” said Lapin. “You’re still getting a pick-up relative to the risk-free rate. The question becomes, are you pricing the added risks appropriately or not?”
With about 2% growth, steady but low inflation and an accommodative Federal Reserve, it’s a “pretty good” environment for fixed income, said Lapin.