Take on credit risk but not interest rate risk, Lord Abbett fixed income strategist Zane Brown told financial advisors in the closing address of Envestnet’s 2012 Advisor Summit in Chicago on Friday.
“Stay away from Treasury securities,” Brown said. “They don’t offer either safety or income!”
High-yield securities, which are yielding 7 per cent or more, “really look pretty good” and are “historically attractive,” according to Brown, who is also a partner at Lord Abbett. Because high-yield securities such as floating-rate funds are more credit sensitive, he explained, they should benefit from what he predicted would be a stable, albeit low growth US economy.
Although US growth appears limited to 2 per cent or 2.5 per cent, Brown said, it is still “headed in the right direction” and “won’t go back to recession.”
What’s more, the US economy looks even more attractive compared to slowing emerging markets. And Europe, which is headed for a “guaranteed recession,” according to Brown.
The eurozone’s likely shift from its austerity policies after recent national elections highlights the fact that the continent “is not moving in a cohesive direction,” he said. “I think [the European economy] will get worse before it gets better,” Brown added.