State Street CEO adds voice to worry over investors' fixed income holdings

Hooley says retail investors risk being on 'wrong side of the equation' when rates climb.
AUG 21, 2013
It's a mistake for investors to be focusing on fixed income, according to Joseph L. Hooley, chief executive officer of Boston-based State Street Corp. (STT) Ordinary investors should have a well-balanced portfolio, and those over-allocated to bonds may be hurt as interest rates rise, Hooley said today in an interview on Bloomberg Radio's “Taking Stock” with Pimm Fox. “I worry more about the retail investor,” Hooley said. “The retail investors are going to find themselves on the wrong side of the equation.” The U.S. Federal Reserve may begin scaling back its economic stimulus program of buying bonds this year and end it in mid-2014, Chairman Ben S. Bernanke said in June, prompting investors to flee bond and equity markets. Investors moved back into equities in July and August, while continuing to exit bonds. U.S.-registered bond mutual and exchange-traded funds may be headed for their worst year of redemptions in almost a decade after investors withdrew $30.3 billion this month through Aug. 19, according to TrimTabs Investment Research, based in Sausalito, California. Bond funds have suffered $4 billion in redemptions this year, which would mark the biggest withdrawal since investors pulled $7 billion in 2004. State Street said July 19 its second-quarter profit on an operating basis rose 16 percent to $571 million, driven mainly by rising global equity markets. The company has reoriented toward growth assets such as exchange-traded funds, Hooley said in today's interview. The third-biggest custody bank, State Street oversees $18.9 trillion. It also manages $2.15 trillion in investments for clients. Custody banks keep records, track performance and lend securities for institutional investors including mutual funds, pension funds and hedge funds. (Bloomberg News)

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