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Bill Gross from the Pacific Investment Management Co. has warned investors looking for capital gains to be ready to exit asset markets behind the rise of economies and interest rates.
Gross, the manager of the largest bond fund in the world, advised investors to keep a mix of stocks and high quality bonds such as Treasuries while they are fairly priced. The Standard & Poor’s 500 Index has already gained 7.8% in 2014 alongside the 3.6 climb of the Bloomberg US Treasury Bond Index while the Total Return Fund run by Gross is so far behind 60 of its peers with a 3.62% return.
According to the money manager, today’s economic growth is an area of uncertainty since it has been deficient in the past. He cited reasons such as consumers being held down by debt and having their outdated jobs at risk. He added that, “As yields have bottomed and are now expected by the markets to gradually rise, it’s down to growth, and growth is a question mark.” Gross expects price growth for assets to become “harder to come by” and will face headwinds due to rising interest rates.
Other fund managers disagree, however, including today’s largest asset manager. Chief investment officer for BlackRock Rick Rieder says that “When the Fed starts moving, the front end of the yield curve will start moving up.” He believes that even with the tapering off of loose policy, assets can still perform relatively well.
Comments made by the Federal Reserve following their two day meeting earlier this week reiterated their intent to keep interest rates low for an extended period of time even after the end of their easing program. According to futures contracts, traders believe that there is a 65% probability the central bank will hike up rates by July 2015 by at least 0.5%
