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Do Yield-Chasers Understand What They're Chasing?

In their search for income amid Fed taper fears, investors are optimistic about unfamiliar, higher-yielding assets, but State Street's Chris Goolgasian questions their judgment.

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Ben Johnson: I’d like to delve a little bit more into the details of some of the funds that you're managing. We’re in a market environment where investors are hanging on Fed chairman Ben Bernanke's every word, and most recently the market threw a bit of what's been branded a taper tantrum in response to some of the comments coming out of the Federal Reserve. I'm curious to know how that affected SPDR SSgA Income Allocation ETF and what you've done in the wake of the market’s taper tantrum to reposition your portfolio.

Chris Goolgasian: I think the first point on that is the shareholders, the clients, and the marketplace need to have a perspective that given how big the problems are in the world, the vocabulary changes of politicians and central bankers have an incredibly larger impact than we ever thought they would when the problems of the world were smaller. Their vocabulary changes disproportionately impact markets, and that's because the problems are so big. If the problems were smaller, we wouldn't be leaning on every bated breath of the next announcement and what the word change is. When the taper comes out, that is a significant change of pace for Bernanke, and the markets reacted accordingly. And I think as long as globally we have these types of significant debt issues, we’re going to have to continue to live with vocabulary-induced volatility.

Ben Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.