173. Why it takes 18 months for interest rate rises to have an impact

Veteran fund manager Richard Woolnough explains inflation and interest rates and their impact on bonds in this very educational podcast. As the cost of living continues to rise here in the UK and elsewhere around the world, Richard discusses the role of central banks, the desire to find a ‘neutral’ rate and how far and how high he believes interest rates will rise in the coming months. He also discusses how long it could take for interest rate rises to have a meaningful impact on the economy,

M&G is a big name in the UK fixed income space and M&G Optimal Income is its flagship offering. This ‘go anywhere’ fund has a flexible mandate that enables the manager to shift the interest rate exposure and to invest across the credit spectrum. The fund can, and often does, invest in equities and derivatives. The name Optimal Income derives from the manager’s aim of purchasing those assets that, in aggregate, provide the most attractive or ‘optimal’ income stream for the fund.

What’s covered in this podcast:

  • Why central banks move interest rates up and down
  • Why the manager believes it takes 18-24 months for interest rate policy to have a meaningful effect
  • Why we have high inflation today
  • What central banks are likely to do in terms of raising interest rates
  • Why the Bank of England is ahead of the curve, but the Federal Reserve is behind
  • What’s behind the desire to find a neutral rate for the economy – a rate that neither encourages you to save nor to consume
  • How the manager goes about finding opportunities for his fund
  • When he might invest in equities and what stocks he holds today
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