Daniel Brady, chief investment strategist at PNC Asset Management, a group that manages $167 billion in assets for clients that include institutions, said equity valuations have come down dramatically and, because of volatility that is likely to persist through 2022, actively managed strategies for fixed-income portfolios "really makes sense, as opposed to just being passive."
Private investment opportunities will remain attractive and serve as a hedge throughout this year, he added.
"If you're looking for a private equity allocation, this is a great year to make those allocations … you might want to look toward venture capital. And hedge funds are still an opportunity with volatility expected to remain elevated when looking for a second-half year strategy," Mr. Brady said.
Jim McDonald, chief investment strategist at Northern Trust Corp., said that because of the level of uncertainty about markets, institutional clients might be less likely to make tactical changes to portfolios. However, high-yield bonds are something Mr. McDonald is talking to clients about. "They are going to be an excellent performer," he said. "We think it is a tactical trade, here."
Sweta Vaidya, head of solution design at Insight Investments, a $1 trillion fixed-income manager, said pension fund officials are concerned about the equity risk in their portfolios and are exploring derisking. "We are partnering with consultants and advising clients to increase their hedge ratios and have a plan to continue doing so as rates continue to increase over time," Ms. Vaidya said.
Angeles Investment Advisors LLC, Los Angeles, which manages $8.7 billion for charitable organizations and about a dozen pension funds, is encouraging clients to hold more cash.
The rapid increase in yields, from zero to above 2%, makes this more attractive, and provides dry powder for when markets bottom. Holding cash is not a long-term investment plan, as inflation erodes its value, but it is more attractive than the alternatives at the moment and has optionality value as well," CIO Michael Rosen said.
Robert Steyer, Christine Williamson, Douglas Appell and Arleen Jacobius contributed to this article.