As the population ages and so do pension plans pension, there is obviously a sector need for fixed income, according to Karl Dasher, CEO and co-head of fixed income in North America at Schroders.
“Given that we need to be in it, how do we operate within this environment, where the compensation for risk at the highest level, at the aggregate level, has declined significantly?” Dasher asked.
Schroders held a panel discussion that was moderated by Dasher in New York on Tuesday for media to discuss their outlook for the fixed income sector.
According to Dasher, politics and the current political environment underlies everything the fixed income team is doing.
Dasher, who has been in the business for more than 20 years, said he’s never seen a time where investors are having to spend more time thinking about the actions of politicians then they are today.
“If I go back four or five years ago, it was a migration to the actions of central bankers. We were spending a lot of time thinking about them,” Dasher said. “Now we’re spending a lot of time thinking about the actions of politicians.”
Beyond monitoring politics, Dasher asked four of Schroders’ fixed income portfolio managers to discuss the biggest risks keeping them up at night.
Andy Chorlton, head of U.S. multi-sector fixed income
For Chorlton, it’s a lack of risk that’s keeping him awake.
“We’ve got the least aggregate amount of risk in our strategies that we’ve had at any time since the financial crisis,” Chorlton said.
Chorlton is concerned about how long what he considers a “QE-fueled misprice of risk” will continue.
“That’s our biggest concern is that QE, I strongly believe, mispriced risk completely in fixed income particularly,” he added.
Michelle Russell-Dowe, head of securitized credit
Russell-Dowe also called out QE as the basis for her concerns.
“Everyone has been sort of mollified by stimulus, by QE, into feeling things are very calm and steady and they have been for a very long time,” she said. “Anybody who’s bearish on rates has been punished since 2012.”
Because the Federal Reserve telegraphs everything, Russell-Dowe doesn’t expect any “earth-shaking surprises.” In the meantime, Russell-Dowe said, “everyone sits around the room trying to discuss where’s the surprise coming from that I can’t see?”