| NEW YORK, April 1
NEW YORK, April 1 Investors continue to pour
money into fixed-income funds as an alternative to the share
market volatility created after 2008's recession, but equity
flows are getting more enticing due to bond valuations, returns
and growth prospects, Columbia Management said on Monday.
While bond prices are high and yields are low, leaving little
margin for error if conditions deteriorate, the stock market
continues to rise, with the benchmark S&P 500 index
closing at a record high on Thursday.
Funds that invest in U.S. stocks have gained $42.3 billion
in new cash so far this year amid the market's torrid run-up,
but taxable bond mutual funds have garnered nearly as much, with
inflows of $37.3 billion, according to data from Thomson
Reuters' Lipper service.
One way of maintaining the flow into fixed income is through
risk management to avoid the "pot-holes" that might exist in the
bond market. Such pot-holes could come from investors changing
their expectations about Federal Reserve policy or from fiscal
policy in the United States, "where we still have not seen the
full impact of tax hikes and sequestration," said Gene Tannuzzo,
Senior Portfolio Manager, Strategic Income at Columbia
And if U.S. rates begin to drift higher, causing price
losses on interest-rate sensitive bonds, investors could get
spooked and start to move money out.
In addition, if equity markets continue to rise, it could
give some investors the confidence to invest more in the sector,
perhaps funding purchases by selling bonds. If investors expect
better times ahead for the economy, then it might be an
attractive time to invest in equities, Tannuzzo said.
Fixed-income investors should be picky and focus on
fundamentals in the current environment, according to Columbia
"We like corporate debt exposure with a skew towards senior
secured bank loans. We also like emerging market debt in
countries with improving fundamental profiles," Tannuzzo said.
He added that investors should be more cautious about bonds
with long durations or excessive foreign currency risk.
According to Tannuzzo, a successful fixed-income strategy in
this environment is one that is diversified, flexible and driven
by bottoms-up research to avoid the pot-holes the market might
present in the future.