Investors getting gouged in pursuit of safety: Art Steinmetz

The flood of assets into U.S. Treasuries and bond funds over the past few years is not symptomatic of a bond bubble, but of a risk-averse investor universe, according Art Steinmetz, chief investment officer of OppenheimerFunds Inc., who warned advisers not to let their clients make that mistake. This was among the takeaways from Mr. Steinmetz’s presentation today at the Schwab Impact conference in Boston. “People are flooding into Treasuries and high-quality bonds,” he said. “But bonds aren’t in a bubble; people just want them because they’re stuffing money in the mattress.” The bottom line, he added, is that “people are paying too much for safety.” He suggested that investors start re-evaluating the traditional risks associated with labels such as “developed” and “emerging” — and to look beyond traditional fixed-income strategies. Emphasizing his theme of “high-quality stocks and low-quality bonds,” Mr. Steinmetz said there are plenty of opportunities in high-yield bonds, floating-rate bank loans, municipal bonds and commercial mortgage-backed securities. “We do not have a bullish view on commercial real estate over the next few years, but we do believe there are mispricings in the CMBS space,” he said. While he acknowledged the recent popularity of sovereign debt in some emerging markets, he suggested taking a longer-term view when investing in the developing world. “It is getting frothy, but that’s cyclical,” he said. “Don’t let it distract you from long-term objectives.” In Brazil, for example, a five-year government bond is yielding almost 12%, which translates to a real yield of 7% when measured against that country’s 5% rate of inflation. The point to keep in mind, he said, is that the emerging markets are currently leading the global recovery. “We would be in much worse shape domestically if we did not have strong demand from overseas,” he said. “These are not your father’s emerging markets, and that’s why it’s time to think globally for fixed-income yield.”