NEWARK, N.J.--(BUSINESS WIRE)--Strange economic forces must be at work when the chief investment officer of one of the world’s largest fixed income businesses says equity’s the place to be in 2016 as investors chase return. Prudential Fixed Income’s CIO was among Prudential Investment Management experts to offer their investment outlook for 2016 this week. PIM, the $947 billion global investment management business of Prudential Financial, Inc. (NYSE: PRU), is among the world’s largest asset managers.
“In an environment where rates are going to stay low, what we feel from investors is that they need more return; they’re desperate for return,” said Mike Lillard, chief investment officer for Prudential Fixed Income, which manages $565 billion. “That’s going to lead them to add risk to their portfolios over time. So, from a broad asset class perspective, the worst place to be is in cash and the best place to be is in stocks.”
Lillard was quick to add that within fixed income, “there’s lots of opportunity to add value,” in areas such as high-yield debt, particularly with defensive sectors like utilities. Within investment grade sectors, he said Prudential Fixed Income favors big U.S. money center banks, which are “really stable from a debt-holder perspective.” Finally, the company also finds great opportunities within high-quality structured products, like AAA collateralized loan obligations and AAA commercial mortgage-backed securities.
Peter Clark, a managing director and portfolio specialist for Jennison Associates, which manages $172 billion across equity and fixed income strategies, said, “I hope in 2016 we’re a little more selective and treat emerging market equities not so much as an asset class, but instead think of it as a universe of opportunities—country, sector and companies.”
Clark likes the consumer discretionary, information technology and health care sectors, “where we see high levels of innovation and very powerful business models that are producing that very long duration higher growth, which is what the market continues to reward.”
Peter Hayes, managing director and global head of investment research for Prudential Real Estate Investors, which has $62.6 billion in gross assets, cited two themes heading into 2016 “First is a lack of ‘grade-A, quality real estate’ in the United States and the United Kingdom, leading to a focus on major cities. In addition, Hayes explained, “We like active asset management—the repositioning, redevelopment, refurbishment of locations around the world,” particularly in Europe and developed Asia.
Ed Keon, managing director and portfolio manager, QMA, which manages $105 across a range of asset classes, said he prefers “returns from riskier assets over returns from safer assets.” He isn’t making any big bets for 2016 and expects to stay relatively close to benchmarks, while slightly overweight on global real estate.
“The change in 2016,” Keon said, “is that it may be time to rethink those currency hedge positions that worked so well at the beginning of 2015—and worked well recently—and invest directly in European equities and Japanese equities. And we think that, in the short run, it’s really hard not to like the stronger dollar idea. But I have a feeling that’s kind of getting close to running its course.”
About Prudential Investment Management
Prudential Investment Management’s businesses offer a range of investment solutions for retail and institutional investors around the world across a broad range of asset classes, including fundamental equity, quantitative equity, public fixed income, private fixed income, real estate and commercial mortgages. Its businesses have offices in 16 countries across five continents and had $947 billion in assets under management as of September 30, 2015. For more information, please visit http://www.investmentmanagement.prudential.com.
Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than $1 trillion of assets under management as of September 30, 2015, has operations in the United States, Asia, Europe and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit www.news.prudential.com.