Investors face the risk of losing money on fixed income securities this year, and should be shifting their funds into equities and commodities, portfolio managers with Fidelity said on Wednesday.

During an afternoon webcast, Trevor Greetham, asset allocation director with Fidelity International Ltd., said that investors need to be reminded that fixed income investments are not risk-free.

“People have gotten used to fixed income as a risk-free asset that can never go down – it’s done really well for the last 30 years or so,” Greetham said.

With yields at such a low level, he said it’s very possible that investors could lose more money on the capital of the investment than they make in income payments.

“I think people could lose money in fixed income, which is something they might not be prepared for,” he said.

But investors shouldn’t be neglecting fixed income altogether. Greetham says investors should be maintaining a well-diversified portfolio of stocks, bonds and commodities, with plenty of international diversification.

He explained that with economic cycles having become increasingly short and volatile, it’s critical to have your clients’ portfolios designed to weather any type of economic circumstances.

“We’re in a world where you could get a very strong economic recovery, and then there could easily be a relapse,” he said. “Keep a range of different asset classes in your portfolio.”

In the current environment, Greetham is particularly bullish on commodities and resource stocks. He believes that over the next six months, commodities will benefit from a rebound in the U.S. economy, combined with continued growth in emerging market economies.

Greetham especially likes copper, which will likely benefit from increased industrial demand as well as investor demand. He noted that investor demand for copper has led to several new investment vehicles tracking its price.

Gold, meanwhile, could see weaker performance this year, particularly if the U.S. economy shows more signs of recovery, pulling the greenback higher.

“I think there will be this investor focus on the industrial commodities, rather than just the safe haven commodities,” Greetham said.

In the equity markets, meanwhile, large caps are likely to be most popular among investors who are gradually regaining their appetite for risk, according to Bob Swanson, vice president and portfolio manager at Fidelity Investments. As clients remain rattled by the stock market volatility of the past few years, he said they’ll likely seek out high quality, dividend-paying stocks.

“In order to get people to come out of bonds, into stocks,” Swanson said, “they’re going to have to go into the more secure names.”

IE