A $963 Billion Money Manager Sees Opportunity Among Jolts

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  • Invested in high-yield debt, structured products, real estate
  • `Expect volatility and sudden risk off trades,' CEO Hunt says

Prudential Financial Inc.’s money management business chief says market volatility will persist in coming months and that the periods of “sudden risk-off” provide buying opportunities.

“We expect volatility and sudden risk-off trades to continue through the summer," said David Hunt, the chief executive officer of PGIM, in an interview in Tokyo. "Part of this is the frailty of the global growth story. Our view will continue to be, unless there are changes in the underlying economy, that these represent buying opportunities in risk assets for long-term investors.”

The $963 billion money manager poured funds into U.S. corporate bonds, high-yield debt, structured instruments and real estate in the first quarter on the view that concerns the U.S. could fall into recession were overblown, according to Hunt. The U.S. or other big developed economies will probably avoid a recession in the next 18 months, and China’s economy is unlikely to experience a hard landing, he said.

Stocks in Asia Friday swung between declines and gains. Investors are pausing for breath at the end of a week that saw equities whipsawed as volatility in the $5.3 trillion-a-day foreign-exchange market climbed toward a 2011 high.

Volatility Triggers

Market volatility could also be triggered by the U.S. presidential election run-up and the U.K.’s referendum on whether to stay in the European Union, according to Hunt.

In the first quarter, the Prudential bought riskier assets at a time when market expectations of a U.S. slowdown were increasing, with the median probability for a recession in the next 12 months jumping to 20 percent in a Bloomberg survey of economists in February, the highest in three years. Those odds have since fallen to 15 percent in April. Hunt didn’t specify what investments the company made.

Yields on U.S. high-yield bonds have dropped to 8.6 percent from a high of 10.2 percent in February. Hunt said that while there will be more company credit downgrades, it will be “manageable. ”

Federal Reserve Chair Janet Yellen said Thursday the American economy shows “tremendous progress” following the financial crisis and is nearing full employment.

“We are seeing solid not great, but solid economic growth,” in the U.S., Hunt said. “The wage growth is really very encouraging, so we do think that the Fed will look at that and say we don’t want to be too late either” in raising rates. Hunt said he expects two Fed rate increases this year.

As a long-term investor whose parent company is the second-largest U.S. life insurer, market swings sometimes offer opportunities for PGIM, he said.

“Our clients can take that kind of 20-year view,” Hunt said. “You have to have a little bit of the stomach to go through those cycles.”