If investors can stomach the risk, high-yield bonds are still the best place to be right now, according to Scott Colyer, chief executive and chief investment officer of Advisors Asset Management Inc.
“In an economic recovery where monetary policy by the Fed is easy by any measurement, the riskiest assets will outperform higher-quality assets and most of the opportunity is in the lowest credit quality,” he said.
Advisors Asset Management has $4.3 billion under supervision, mostly in fixed-income products and portfolios.
Mr. Colyer said the portfolios he manages average near the lowest end of investment grade, whether the bonds are corporate or municipal.
Higher interest rates are inevitable, but he said he won't try to time the market.
“We're actively talking to our clients about what happens when rates rise,” he said. “But it's important to remember that different parts of the yield curve can move differently, and unless we see any type of inflation we're not going to be afraid of going out on the yield curve” with longer-term bonds.
“Right now, the Fed is trying to create some inflation, but it still might be two or three years down the road, if at all,” he said.
The likely manipulation of interest rates by the Federal Reserve is where things start to get tricky, he said.
“Historically, the Fed overshoots, and the risk is that they leave rates too low for too long,” he said. “And that means when rates are finally increased, we'll get a gust of inflation, which is something the market is not expecting.”
Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.
