About this episode
Spring is in the air, and it’s not just the plants that are enjoying the sunshine. The U.S. economy continues its bracing growth, even while the outlook for inflation and interest rates remains stubbornly cloudy.
Chief Market Strategist Troy A. Gayeski joins Content Strategist Harrison Beck to discuss his latest strategy note. He examines where portfolios may need some spring cleaning, especially when it comes to redeploying last year’s cash allocations, and how key alternatives could play a part.
Transcript excerpt
Harrison Beck: Welcome to the Takeaway, a podcast from FS Investments. I’m Harrison Beck, FS Investments Content Strategist, and I’m joined today by Chief Market Strategist, Troy Gayeski, to talk about the latest in economic trends and market strategy. Welcome, Troy.
Troy Gayeski: Hey, how are you, Harrison?
Harrison Beck: Doing good. How are things up in Connecticut?
Troy Gayeski: It’s a little gloomy today, I must say. It was nice weather recently, so I’m not complaining.
Harrison Beck: Troy, given the continued growth in the U.S. economy, but also the halting progress against inflation, high interest rates and the current outperformance of risk assets like equities as compared to cash, there is a lot for investors to respond to, but “spring is in the air,” as you say, in the title of your latest strategy note, so, many investors may be thinking about a little portfolio spring cleaning. So, let’s talk about what they may want to consider.
Let’s start with performance. How are key alternative investment strategies performing in the first quarters of 2024? And how does that compare to traditional investments, like equities?
Troy Gayeski: Yeah, it’s a great question, Harrison. So, if you think about how this year’s progressed, just very simplistically from an economic standpoint, is the economy continues to do better than most expected. Inflation continues to trend higher. In fact, there’s been some alarming reacceleration of certain inflation metrics.
And so, what this has led to is meaningfully better performance for equities vis-à-vis expectations. You know, think high single-digit type returns—low teens. Fixed income has done what I lovingly refer to as “the fixed income thing,” and find new ways to lose money for investors. So, another tough start to the year for bonds, down north of 1%, in some cases north of 2%, depending on the index.
And then cash is doing the cash thing. It’s making you a no volatility, no risk, marginal return; only marginally above, let’s call it, 1–1.5%, depending on what type of cash instrument you’re in.
And then alternatives (depending on the strategy) have either comfortably outperformed cash or are right in line with cash.
So, I think that the whole premise of this “spring cleaning” argument for portfolios is, look, the number one challenge for investors today (whether these are institutions, individual investors, financial intermediaries like advisors or consultants) is these massive cash piles have been built up over the last several years after the pandemic.
