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‘I Wouldn’t Be Surprised to See Rates Go Negative’

Portfolio managers at a media lunch in Manhattan said the market fallout from the coronavirus is far from over.

As the impact of the novel coronavirus continued to wreak havoc on global markets, sending stocks and bond yields tumbling, portfolio managers at a media event in Manhattan predicted a further decline in interest rates.  

“I would not be shocked if [U.S. rates] went negative,” said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex, a quantitative fund manager. “Who at this table would have thought the Fed would cut by 50 basis points on Super Tuesday? The gloves are off.”

Kaminski was referring to the U.S. Federal Reserve’s emergency decision to cut rates by half a percentage point on Tuesday, lowering the benchmark rate to a targeted range of 1 percent to 1.25 percent.

The yield on the 10-year Treasury slid to 0.7 percent on Friday evening, while the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite indexes fell between 2 and 3 percentage points each. 

Kaminski was speaking at an annual event for female portfolio managers put on by Natixis Investment Managers. AlphaSimplex is an affiliate of Natixis. 

The event differed markedly from the previous year’s gathering: air kisses replaced handshakes; a bottle of hand sanitizer was passed around the table before lunch was served. But the biggest change was the topic of conversation. Last year, much of dialogue centered on the role of women in finance; this year, coronavirus dominated. 

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“The real crisis we are having is of interconnectivity,” said Kaminski. “We have systems that are fragile and we don’t understand how fragile they are. That’s what I’m most concerned about from a systemic point of view.” 

She specifically cited companies with tight margins — think airlines — as an area of concern. 

About 100,000 cases of the viral infection had been confirmed as of Friday evening, with 3,400 deaths, according to the World Health Organization. 

Managed futures funds thrive in down markets — the Standard & Poor’s 500 stock index was down about 8 percent through the year as of mid-day Friday, while managed futures funds had gained about 4 percent — but Kaminski admitted that she is not immune to the fear surrounding the virus and the ensuing consequences.  

“We are systematic traders, and I’m terrified. But that’s not my process — my process is to use the data,” she said. “It’s hard to disentangle emotion in this environment. I can’t personally do it qualitatively, but we can do it quantitatively.”  

Another knock-on effect, Kaminski said, is that investors are starting to rethink managed futures strategies. She acknowledged that these funds have been a hard sell for the past decade.  

“Equities have been so good that investors questioned the opportunity cost of not being in an asset class that goes up 30 percent,” she said. “Investors are going to realize that stocks don’t always go up. People don’t always want diversification when the markets are going up.” 

Amber Fairbanks, a portfolio manager on the equity team at ESG-focused manager Mirova, a Natixis affiliate, had a slightly more optimistic view. 

“We are seeing this as an opportunity. Obviously there will be a strong economic impact from the coronavirus, but it will play out over a number of quarters, not a number of years,” she said. 

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