Displaying items by tag: rate hikes
Last month, we wrote about a survey that revealed advisors are seeing the importance of active ETFs since owning passive index-only ETFs left them too exposed to market conditions. Another survey was performed this month showing similar results. VettaFi held a webcast called Active Strategies for Rising Rate Headwinds that featured Franco Ditri and Chris Murphy of T. Rowe Price and Todd Rosenbluth of VettaFi talking about the Fed’s monetary policy outlook and how financial advisors can incorporate active strategies into a bond portfolio. After the webcast, a poll was taken revealing that more advisors are seeing the need to add active management to their portfolios, given the likelihood that the Fed will continue to raise rates. The majority of respondents expect to increase their exposure to active ETF strategies, with 50% being “very likely” and 39% saying they are “somewhat likely.” Of those, 39% of respondents said they would most likely consider high-yield/bank loan funds for exposure, with 27% saying they would consider active short-term bond funds. In addition, 20% are contemplating core-plus and 14% are looking toward core bond funds. If the Fed continues its tightening policy, actively managed fixed-income strategies could help reduce risk.
Finsum:A post-webcast poll revealed that more advisors are seeing the importance of active fixed income with the Fed continuing to pursue a tight monetary policy.
The real estate market took a big hit last year as interest rates rose substantially. As debt became more expensive, real estate investors lost purchasing power. For instance, the average 30-year fixed mortgage is more than double where it was in January 2021. This led to sales of luxury homes in the U.S. falling 38.1% from the previous year during the three months ending on November 30th. According to Redfin, it was the largest decline on record. Ari Rastegar, the founder, and CEO of Rastegar Property Company believes that if investors have the liquidity and the ability to execute on investment opportunities, this is a generational buying opportunity. He noted, "This is not 2008 where the banks are jeopardized. The banks have good bills of health, we don't have these subprime loans that are going to blow up. Additionally, we are beginning to see inflation soften. The Consumer Price Index, which peaked in June at 9.1%, has been gradually declining.” He also noted investors don't have to invest in property to take advantage of this opportunity. He told Business Insider that REITs are also on clearance. Rastegar expects the multi-family and industrial property to recover the fastest and recommends looking at the Blackstone Real Estate Income Trust (BREIT) and the Starwood Real Estate Income Trust (SREIT).
Finsum:Due to a record decline in luxury home sales in the U.S., real estate investor Ari Rastegar believes this is a general buying opportunity for investors.
If DataTrek Research is correct, we can’t expect a new bull market to commence until volatility declines. The research firm said that volatility isn’t expected to decline until two things happen. The first is the Federal Reserve stopping its interest rate hikes and the second is more clarity on corporate earnings expectations as we head into a potential recession next year. The firm believes that if investors can gauge those two factors, then they can capitalize on large stock market returns. They listed the S&P 500's 28% gain in 2003 after the dot-com bubble, the 26% gain in 2009 after the Financial Crisis, and the 61% surge from the COVID-19 low until the end of 2020 as examples. DataTrek co-founder Nicholas Colas stated, "For volatility to structurally decline and drive those high returns, investors need to have growing confidence they know how corporate earnings will develop. This means they must have a handle on monetary/fiscal policy." At present, investors are not sure about those factors. The Fed recently surprised the market when it indicated that it will likely raise rates by another 75 basis points next year and leave them higher for longer. In addition, analyst earnings estimates are all over the place.
Finsum:According to DataTrek Research, investors shouldn’t expect a new bull market in stocks until the Fed stops rising rates and there is more clarity on earnings expectations.
Even though inflation continues to force the Fed’s hand on tightening, money managers are starting to rebuild their exposures toward Treasuries, with the hope that the highest payouts in years will help cushion portfolios from the damage inflicted by additional rate hikes. For instance, Morgan Stanley believes that a multi-asset income fund can find some of the best opportunities in decades in dollar-denominated securities such as inflation-linked debt and high-grade corporate obligations. That’s because interest payments on 10-year Treasuries have hit 4.125%, the highest since the financial crisis. In addition, PIMCO estimates that long-dated securities, which have been hit hard due to the Fed’s hawkishness, will bounce back if a recession should occur. They believe that a recession would ignite the bond-safety trade, where government debt would act as a hedge in the much-maligned 60/40 portfolio. Essentially, higher income and lower duration are helping to make the case that bonds will have a much better 2022. While inflation and liquidity concerns remain, the median in a recent Bloomberg survey shows “dealers, strategists and economists project bond prices will rise modestly in tandem with cooling inflation, with the 10-year US note trading at 3.5% by end of next year.”
Finsum:A combination of higher income payments and lower duration has money managers becoming more bullish on treasuries.
According to the Wall Street Journal, investor home buying has fallen 30% over the past year due to high prices and rising interest rates. The Journal cited Redfin data that showed companies bought 66,000 homes across 40 markets in the third quarter of 2022, a 29% drop from the 94,000 homes bought during the same period last year. The declines come after a two-year period in which investors piled into the US housing market as the demand for suburban properties rose. While investors were buying one in every five homes at the start of the year, a combination of rising rates and elevated prices is driving the slowdown. The Federal Reserve tightened rates from near zero in March to a current range of 3.75% to 4%, which pushed mortgage rates higher and curbed demand. The interest rate hikes were in response to escalating inflation. In addition, house prices have remained the same in many areas of the market despite the fall in sales.
Finsum:Investor homebuying dropped 30% year over year due to a combination of rising rates and high home prices.