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Income Fund Portfolio Managers Discuss Rising Rates and the Impact on Bond Investors
By Advisor Perspectives
Wealth Management, Asset Management, Capital Markets
After years of relative calm, bond investors are suddenly facing the reality of rising interest rates in 2018. The portfolio management team for the PIMCO Income Fund, Daniel Ivascyn and Alfred Murata, discuss the implications for investors.
Q: What would you say to bond investors who are worried about rising interest rates?
Ivascyn: That is a very good question, and it’s on the minds of our investors, given that interest rates have risen for most of this year.
At PIMCO, we believe interest rates may continue to go a little higher, but we don’t think a major increase in interest rates is very likely over the next few years. In fact, U.S. bond yields have already risen to the point that we think certain bonds offer attractive value for investors today, especially when considering that a diversified bond portfolio can provide income absent default and may help protect the portfolio against volatility in stocks.
We have constructed the Income Fund with the aim of being resilient in a rising interest rate environment, but we also have to consider other scenarios − in particular, an environment where slower economic growth may lead to interest rates falling, rather than rising. In such a scenario, having some exposure to interest rates would be expected to benefit investors. Thus, we have some exposure to interest rates as a way
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Photo: Allan Ajifo