With investors still trying to heal from the economic crisis that tore through the global economy, many are pouring their dollars into bond funds. But there are still challenges going forward and many need help navigating their options, said investment experts and fund managers from The Hartford at a luncheon in New York City on Tuesday.
The industry saw record inflows into bond funds in 2009, said Jim Davey, president of The Hartford Mutual Funds, with net inflows of almost $373 billion dollars into bond funds, according to the Investment Company Institute. In fact, a survey conducted by The Hartford in 2009 found 72% of investors said diversifying their bond portfolios was important. Yet over half didn’t know how to do it. “Education is key for investors who don’t know which asset classes make sense in today’s environment,” said Davey. “The need for advice on this is still tremendous.”
That’s where advisors come in. With $161 billion in total assets at Hartford Investment Management Company predominantly in bond funds, there is a lot of work to be done.
Meanwhile, investors are still trying to get back on their feet after the financial downturn. Greg McGreevey, president of Hartford Investment Management, said at the luncheon that the economy is showing signs of improvement, but several challenges could impact the economy going forward: imbalances that exist between developed and developing countries; the global economy, where the actions of one country impacts the others; and the troubles with job growth and the residential real estate market in the United States.
Europe and the United States make up half of the world’s GDP, said McGreevey, but they’ve had the highest deficits they’ve ever had and huge trade imbalances. To fix these problems, they can spend less and raise interest rates, he said.
At the national level unemployment is around 9.6% in the U.S. and small businesses are suffering, McGreevey pointed out. Until consumers jump back into the market, small businesses will not be able to expand, given that consumers make up 70% of GDP.
Meanwhile, the Federal Reserve is trying to pump more money into the economy by announcing stimulus plans, which Wall Street is calling QE2, last week. McGreevey said the stimulus should be good for credit, although it will only have a short-term impact.
“I’m more neutral on QE2,” said Michael J. Bacevich, managing director at Hartford Investment Management. “It’s a short-term shot of adrenalin. It’s a six-month monetary experiment with an undetermined outcome. At best the long term effects are zero and at worst they are inflationary. We are not repositioning our portfolios based on these recent announcements. There are a number of things we need to hear from Washington about the path to entitlement reform, Bush tax cuts, and others and all these issues are more important than QE2 in my mind.”
“Our overall view is we think it will be challenging at the end of the day,” McGreevey said. “On the job growth market in the U.S. we do see some encouraging signs. Job growth will slowly improve in 2011 and 2012. As we get through the residential mortgage front we expect it to bottom out, but it’s not at the bottom yet. We are in for a slow growth period. It took us a long time to get into this, and it will take a long time to get out of it.”
At the end of the day McGreevey sees the developing world growing faster than the developed world, with a growing middle class and better fiscal policies. Investing in the developing world- whether China, the BRIC nations or U.S. companies that benefit from emerging markets- is one way to create opportunities from the economic challenges facing the world.