UBS: The era of cash is over. These assets have great opportunities!

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　　 Source Wind Wande

UBS said that the era of cash was coming to an end. Although investors' returns on investment instruments such as money market funds and certificates of deposit have always been above 5%, it is expected that such interest rates will not last too long.

Solita Marcelli, chief investment officer of UBS Global Wealth Management in the Americas, wrote in a report: "We believe that investors should limit their total cash balance, because the decline in interest rates this year and beyond will reduce cash returns."

As the Federal Reserve began to raise interest rates in 2022, investors poured into money market funds. According to the Investment Company Institute, these funds currently have more than $6 trillion in funds.

As of May 20, the 7-day annualized yield of Crane 100 Monetary Fund Index was 5.12%. However, as the Federal Reserve lowers interest rates, the yields of these bonds will decline. According to the Fed Watch Tool of the CME Group, the market currently expects the interest rate cut to begin in September.

Marcelli said: "We believe that in addition to cash and money market funds, it is very valuable to establish a liquidity strategy, including fixed deposit, bond ladder and structural investment strategy, to deal with the expected portfolio in the next five years."

Through the bond ladder strategy, investors buy several bonds with staggered maturities, and then reinvest the proceeds of maturing bonds in new bonds with longer maturities. She also recommends holding strategic, diversified fixed income exposure.

At present, UBS believes that high-quality credit is expected to outperform many assets. Leslie Falconio, Head of Taxable Fixed Income Strategy of UBS Americas Chief Investment Office, said in another report that UBS is optimistic about institutional mortgage-backed securities, investment grade corporate bonds, AAA grade commercial mortgage-backed securities and 10-year inflation protected treasury bonds.

At the beginning of this year, the bank adjusted AAA level CMBS to the highest priority allocation, because it believed that the overall risk had been absorbed, and these assets would benefit from the peak of the Federal Reserve's interest rate.

Falconio wrote that high-quality AAA level CMBS "performs well even in the environment of interest rate fluctuations this year, so it should continue to benefit as interest rates and volatility decline in the coming months."

UBS also withdrew from inflation protected bonds earlier this month after initially buying five-year inflation protected bonds in August last year.

The main part of TIPS fluctuates with the change of consumer price index of consumers in all cities. At maturity, you get the larger part of the inflation adjusted price or original principal.

"The value of fixed income is relative. Although there are still internal or internal opportunities in the industry, this is not the time for complacency," Falconio said.

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Editor in charge: Wang Han