Some of the world’s biggest investors are looking beyond interest-rate hikes, bank failures and the threat of recession to one of the greatest fears of all money managers — missing out on the next big rally.
For trillion-dollar investment groups Franklin Templeton, Invesco and JPMorgan Asset Management, the accelerating financial instability seen in Silicon Valley Bank, Credit Suisse Group AG and First Republic Bank are cues to speed up preparations.
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They’re convinced that an impending slowdown in the US and elsewhere will prompt central banks to switch back to looser policy, triggering a renewed surge higher in markets.
“If you miss the start of the rally, you miss the bulk of the returns,” said Wylie Tollette, chief investment officer of Franklin Templeton Investment Solutions, a unit of the $1.4 trillion fund manager. “It’s very difficult to catch up if you miss the first week or two. Sometimes it’s just days.”
That imperative has large investors bulking up on longer-dated bonds, eying big losers of the past year like tech stocks and selectively buying riskier assets like private credit.
Bonds
“Fixed income is back,” said Tollette from Hong Kong on a trip across Asia to meet large investors. His firm is adding longer-maturity government bonds from the US, UK and Germany.
JPMorgan’s investment arm has bought more long-dated Treasuries for fixed-income portfolios in recent weeks despite the prospect of losses should interest rates pop back higher. The danger of holding too few bonds when the Federal Reserve pivot sparks a rally outweighs any near-term depreciation, said Bob Michele, who as chief investment officer helps oversee $2.5 trillion in assets.
“My greatest concern is not that we buy now and yields go up another 50 basis points,” he said, noting that prices are still around the cheapest since the financial crisis. The bigger worry for him is being out of the market when the tide turns.
Australian Retirement Trust, one of the nation’s largest pensions with $159 billion in assets, is another investor that has bought back into government debt this month.
Read the full article here by Richard Henderson, Advisor Perspectives.
