Andres Garcia-Amaya, vice president and market strategist at J.P. Morgan Asset Management, noted that fixed income investments have had a great 31-year run, and interest rates are as low as ever. But, this means the only way to go is up, and bond prices will fall.
He told attendees at the 42nd Annual Retirement & Benefits Management Seminar, hosted by the Darla Moore School of Management at the University of South Carolina, and co-sponsored by PLANSPONSOR, that this does not mean retirement plans should move assets out of fixed income altogether. Plan sponsors need to look at other fixed income asset classes not as influenced by interest rates, such as commodities, high yield funds and emerging market local denomination debt. Garcia-Amaya shared data from Standard & Poor’s, which shows that equities have reached an inflection point similar to that reached in March 2000 and October 2007. The data showed that following those prior inflections, the market had a steep drop. However, he noted that the difference this time is that there is a lower price to earnings (P/E) ratio. “Folks are willing to pay less [for earnings], and fixed income yield [will trend] lower, so there’s no other option but equities,” he stated.