Money managers will face a wide range of challenges and opportunities in 2016, from a changing interest-rate environment to geopolitics to more-demanding clients to increasing technology needs.
“The trends we saw in the latter part of 2015 will continue to accelerate in intensity in 2016,” said Stephen Kolano, head of multiasset solutions for the investment strategy and solutions group within BNY Mellon Investment Management, Boston.
One major change for money managers is that we've now entered an environment in which rates have risen for the first time in almost a decade.
Members of the Federal Open Market Committee agreed on Dec. 16 to increase the federal funds rate by 25 basis points, after keeping it at zero to 0.25% for years. FOMC members forecast raising rates one percentage point each year over the next three years, reaching 3.3% by the end of 2018.
“We are going to be coming into the first rate-hiking cycle in a decade. The (Federal Reserve) is going to do that gently and allow the market to acclimatize,” said John Bilton, global head of multiasset strategy at J.P. Morgan Asset Management, London.
Payson Swaffield, chief income officer at Eaton Vance Management, Boston, also noted that rising rates will be “a new start” for fixed-income managers in the year ahead.
In the face of short-term rising rates, Mr. Swaffield suggested that high-yield securities and floating-rate loans, Treasury inflation-protected securities and emerging markets local currencies are areas that might be interesting to investors in 2016.
Mr. Swaffield added that he has also been seeing increasing interest from institutional investors — particularly from pension plans — in municipal bonds.
Despite the rate increase, Erik Knutzen, multiasset-class chief investment officer at Neuberger Berman Group LLC, New York, said it was “going to be difficult to realize long-term returns comparable to historical experiences.”