Throw Up Your Hands and Buy With the Fed, Sydney Investor Says
Throw Up Your Hands and Buy With the Fed, Sydney Investor Says
(Bloomberg) -- The Federal Reserve is in effect controlling financial markets with its mammoth and broadly scoped monetary easing programs, and investors are best served to simply buy alongside, a Sydney fund manager said Thursday.
“You would be hard-pressed to argue that we are in a free market system in any asset price in the U.S.,” said Vimal Gor at Pendal Group, which managed about A$101 billion ($70 billion) as of December. “You effectively buy the stuff they’ve told you they are going to buy -- which is a wholly unsatisfactory way of running assets, but there’s no price discovery anymore,” he said. “There is nothing else really to do.”
Gor’s view matches with that of many market participants who ascribe the powerful rebound in equities and credit since March to central bank asset purchase and liquidity injection programs. For his part, Fed Chair Jerome Powell said Wednesday that “we’re not focused on moving asset prices in a particular direction at all,” and the efforts are instead directed at the economy.
Gor, who is the head of bond, income and defensive strategies at the Sydney asset manager, told Bloomberg’s Inside Track webinar series that investors should lever up in high-yield credit. As part of its effort to support corporate financing, the Fed included junk bonds that were investment grade before the crisis.
“They’ve told you where they want high yields to be, they are buying investment-grade ETFs, they are effectively controlling the price of equity markets, they are explicitly controlling the price of bond markets,” Gor said.
Gor suggested buying volatility to hedge those positions, “in case the situation unravels.”
At a separate webinar Thursday, Fidelity International portfolio manager George Efstathopoulos said his firm has been rotating out of U.S. equities and into credit on the “don’t fight the Fed” rationale.
Ultimately, Treasuries trading may be deadened by the Fed’s expanding imprint, as has happened in Japan, Gor said.
“Five years plus, I don’t know if there is even a role for government bonds in this market because the central banks will pretty much own all of them,” he said. “The Treasury will issue them, the central banks will buy them, but they won’t trade. It will just be like Japan.”
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