In a world where stock market volatility keeps many potential investors at bay, seeking stability and reliable returns becomes paramount. If you find yourself wary of the unpredictable swings of stocks, there’s a compelling alternative that deserves your attention: bonds. While the ups and downs of the stock market garner the most attention, bonds have become an attractive option that offers a haven of stability and consistent income as interest rates have been rising for the past thirteen months.
Two prominent fund managers, Guy Mani and Niall O’Sullivan, recently shared their perspectives on the bond market in interviews with Globes, shedding light on the opportunities and potential benefits associated with bond investments.
Guy Mani, the Chief Investment Officer at Meitav Dash Investments, believes that the recent increase in interest rates worldwide has opened up favorable prospects for bond investors. Despite the apprehensions of some who may feel that they missed the opportunity to capitalize on the interest rate surge, Mani reassures that the window of opportunity is still open and emphasizes the potential for high yields over an extended period.
According to Mani, the expectation is that interest rates have reached their peak in Israel but will remain at elevated levels for at least the next year. He anticipates a potential rise of another quarter or half a percent and asserts that aggressive decreases in interest rates are unlikely due to factors such as accumulated savings during the pandemic and the persistent stickiness of inflation, particularly in services.
Mani asserts that the prospect of a prolonged period of elevated interest rates creates investment opportunities across various types of bonds, including government and corporate bonds, both domestically and internationally. He highlights that high-rated bonds can generate annual returns ranging between 5.5% and 6% moving forward. In addition to that, there is a potential for capital gains as inflation gradually subsides.
The positive aspects of investing in bonds are particularly significant in the current market environment. Bonds are emerging as a substitute for stocks, which remain volatile due to uncertainties surrounding inflation and its impact on the profitability of companies. Previously, investors seeking returns relied heavily on the stocks, but the current environment has reversed the situation, offering relatively high current returns in bond investments.
Meitav has already delivered notable returns in bond-focused investment products. For example, the firm achieved a positive return of 0.31% in the past year, while competitors experienced negative returns, some reaching as low as minus 6%. Despite the challenges of generating positive returns in a challenging market, Mani expresses optimism about the future and emphasizes the potential for increased returns by further expanding investments in bonds.
Niall O’Sullivan, Chief Investment Officer, Multi-Asset Strategies, EMEA at Neuberger Berman, provides further insights into the attractiveness of bond investments. O’Sullivan, responsible for managing significant investments across various channels, emphasizes that investing in bonds can currently yield an annual return of approximately 6%. O’Sullivan highlights the inverted yield curve, where short-term government bonds offer higher yields than long-term bonds, making short-term bonds particularly attractive.
Neuberger Berman, a global investment management company, operates in 26 countries and manages substantial assets worth around $440 billion.
While stock markets have experienced significant growth since the beginning of the year, O’Sullivan remains cautious about investing in stocks. He predicts a potential slowdown in the American economy due to increasing interest rates and elevated inflation. Consequently, he advises investors to consider the appropriate allocation of investments based on their timeframes and goals. Diversification is key, with O’Sullivan recommending considering alternative investments such as commodities and real estate in order to mitigate inflation.
The choice of investment avenues holds the key to unlocking potential returns according to O’Sullivan. Within fixed income channels, compelling prospects are emerging in the realm of developing nations’ bonds, including the offerings from Israel. Notably, Israel presents an enticing opportunity with its attractive returns. Moreover, Neuberger Berman anticipates that the Israeli economy will experience a reduction in price pressures, accompanied by a slowdown in inflation towards the targeted range by year-end, bolstering the case for investing in Israeli bonds.