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Action in bonds may a warning signal for market, expert says

Ramos: Worried about bonds more than stocks

The fact that investors are investing in bonds for capital gains may be a "warning signal" that something bad could happen in the bond market, investing expert Ernesto Ramos told CNBC on Tuesday.

"I never thought I would see the day where people invest in stocks for yield and in bonds for capital gains but that's actually what's going on today," said Ramos, head of equities at BMO Global Asset Management.

"In order to get those returns from bonds, you're going to have to see some substantial rate reductions and we might not see those."

John Zich | Bloomberg | Getty Images

While he's a little worried about bonds, he's not as concerned about the stock market. He believes equities still have room to move higher.

"The earnings seasons that's just getting started is presaging some interesting positive developments there so we'll keep our eye on that," Ramos said in an interview with "Power Lunch."

While he is a proponent of active investing, he said there are times when it is appropriate for people to invest in index funds.

"When you don't know where to go, if you don't have a good financial advisor, if you don't have the tools at your disposal to pick the good from the bad manager, I think it makes a lot of sense to index because you get the lower fees," he said. "And you get the broad market return."

Right now, he advocates a low-risk approach to equities. He specifically likes AT&T, which is in the BMO Low Volatility Equity Fund. It is a "boring" stock that is underpriced and has a 5 percent dividend yield, Ramos said.

"Even if it doesn't go up in price, just take those dividends and reinvest them," he said.