Lisa Pauline Mattackal and Aaron Saldanha

(Reuters] – Investors around the world are looking for more opportunities, and some global fund managers said that they have become selective with their fixed income and stock allocations. They anticipate volatility triggered by higher inflation and uncertainties surrounding central bank policy.

Lisa Hornby (head of U.S. Multisector Fixed Income, asset manager) stated that “there are many moving parts worldwide and in the United States. That should cause some volatility and opportunity going into 2022.” Schroders According to LON:, the Reuters Global Markets Forum said that “stagflation”, which is increasing in potential risks, was also mentioned.

She stated that “very few markets seem cheap right now”, but that there are still pockets of value that offer value.

Ashley Fagan from Amundi’s global ETF, Indexing, Smart Beta Strategic Clients was similarly candid. In her opinion, there will be more volatility in macroeconomics and higher inflation. As such, she recommends using hedges such as gold for portfolio protection.

Fagan remains pro-risk but recommends taking a defensive stance on U.S. government debt and European sovereign debt. Schroder’s Hornby moderates risk across fixed income portfolios.

Investors are moving away from broad U.S. indexes to shift towards high-quality stocks and financials. Fagan stated that fixed income was preferable to shorter-duration bonds.

Investors are expecting the U.S. Federal Reserve announces a tapering off of asset purchases at its November Meeting – something Hornby already sees fully priced in bond markets. But, more uncertainty surrounds the timing when the central banking will raise interest rates.

The U.S. government bond yield curves and the UK’s were flattened over the last week. This indicates concern about how policymakers will manage rising inflation while sustaining an economic recovery.

Graphic: U.S. yield curve: https://fingfx.thomsonreuters.com/gfx/mkt/zdvxorxkepx/US%20yield%20curve.png

Hornby believes that the Fed is more prudent and will maintain accomodative policies longer than the markets expect. Therefore yield curves could steepen, with the U.S. benchmark 10-year yield likely trading closer to 1.755%.

Inflation-protected bonds funds saw their largest inflows for more than 2 months in the last week. Vanguard and BlackRock both launched more targeted bond ETFs.

This interview was done in the Reuters Global Markets Forum chat room, hosted by Refinitiv Messenger. Sign up here to join GMF: https://refini.tv/33uoFoQ) https://refini.tv/33uoFoQ)); Reporting by Lisa Mattackal, Aaron Saldanha and Supriya Rangarajan in Bengaluru; Editing by Shailesh Kuber)