About this episode
Chief Market Strategist Troy A. Gayeski, CFA, shares the key takeaways from his new strategy note, Replacing or complementing fixed income with alternatives
Troy joins Content Strategist Harrison Beck to examine how investors can replace or complement fixed income with alternatives. He addresses bonds and duration, the potential impact of Fed cuts, and key strategies including commercial real estate lending, corporate private credit and liquid multi-strategy.
“The more things change, the more they stay the same. And if you think about use cases for alternatives, one of the most profound continues to be as a substitute or complement to fixed income exposure. And that’s going to be with us for quite some time.” –Troy A. Gayeski
Transcript excerpt
[00:00:30] Harrison Beck: Welcome, Troy.
[00:00:31] Troy Gayeski: Good to see you, Harrison. Happy holidays to everyone in advance.
[00:00:35] Harrison Beck: Happy holidays to you. Happy holidays to all of our viewers and listeners. Troy, your new strategy note is called “Replacing or Complementing Fixed Income with Alternatives.” It examines one of the most attractive investment themes of the past six to seven years, using appropriate alternative strategies to replace or complement fixed income.
This note does a great job of kicking the tires on bonds and duration, and then articulates why alternative strategies like commercial real estate lending, corporate private credit and liquid multi-strategy offer a compelling way to replace or complement fixed income. So let’s get into it. You paint a great and very funny picture of long only fixed income managers talking up bonds and duration.
What’s the argument that investors are hearing for why they should drop everything and buy bonds? And how good is that advice?
[00:01:29] Troy Gayeski: So it’s pretty funny because everybody talks their book to some level in this industry. And that’s kind of understandable if you’re a fixed income manager, you almost always like duration. The question is, do you like it? Do you love it? Or do you really, really love it?
Because that’s what you do, right. I once said on Bloomberg that I’ve never seen a fixed income manager not love duration. And to be fair, as the listeners probably know, there was a brief period at the end of ’21, early ’22, where a manager that typically had seven years average duration might have shortened it to six-and-a-half or six.
Right. It’s like, yeah, look at us. So I get that. But kind of what I don’t get is when objective people that have no inherent bias make a rational argument to go long fixed income in size. And look, I also get the concept of trading, and trading ranges. You know, when the tenure hit 5%, there was clearly much more value than when it was at one-and-a-half.
