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Friday 10 November 2023
Investment Talks
The Reinvestment Risk of Cash
November 2023 | While cash interest rates may be relatively high today, those elevated levels may not last very long. For investors whose objectives can be measured in months or years rather than days, we believe today’s historically elevated interest rates may call for allocating at a point on the yield curve that controls for volatility risk without ignoring reinvestment risk.
01 | With cash rates elevated, why own longer-maturity fixed income securities that may offer a lower yield and higher volatility?
02 | Against the interest rate risk inherent in most fixed income securities, investors should consider the reinvestment risk inherent in cash.
03 | Moving into longer-maturity fixed income securities may help investors lock in today’s attractive income levels before they disappear.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as of November 10, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the [author] and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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Third-quarter returns were strong. Performance of BBs and Bs was fueled by falling government bond yields as the major central banks’ swings to more accommodative policies were offset by mildly widening spreads. The big performance surprise was the extremely strong performance of CCCs and the Distressed index.
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Passive strategies have generally have fared well over the past decade, which has made it easy to forget the long periods during which active managers outpaced passive approaches. The reasons we believe market concentration will decline include (1) a shrinking earnings advantage for the top ten companies, and (2) seemingly unsustainably high valuations. We believe investors may benefit from investing with active managers that thoughtfully select their exposure based on the earnings and valuation profile of each stock.
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