NEPC’s Karen Harding was quoted in a recent Barron’s PENTA article which was an in-depth guide for how ultra-high net worth individuals should be thinking about allocations and working with their advisors to navigate this economic environment. View the article on the PENTA site here.
Investors have spent the past 18 months watching as the U.S. central bank hiked interest rates from a pandemic low of between 0.25% and 0.50%, all the way up to 5.5%.
Now, with just one Federal Reserve policy meeting left in the year, the best strategy might be a proactive one: trying to get ahead of what the central bank does in 2024, according to Karen Harding, team leader for the private wealth practice group at Boston-based NEPC.
“What’s important for investors to keep in mind is that we’re probably at the peak of the tightening cycle,” Harding says.
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The past two years have been a bloodbath for bonds, as markets reacted to higher rates, and to policymakers’ insistence that rates may remain higher for longer than many investors expect. “When you’re in a rate-cutting cycle, bond prices go up,” Harding says. “So, just as bond investors have seen losses in their portfolios, they will get gains now.”
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Financial advisors to wealthy clients should have, or be able to tap, expertise on the kind of credit research needed to pick individual bonds for a portfolio or a ladder, Harding says. “It really does benefit most investors to have a professional invest for them.” Those who don’t have quite as much to invest still might be able to get similar exposure from an exchange-traded fund or mutual fund.
Still, there’s good reason for investors, especially squeamish ones, to simply sit on the sidelines for a bit. “You can get more on a cash yield [basis] than you can holding a fixed income instrument because the yield curve is still inverted,” Harding says. That is, shorter-term rates are higher than longer ones. That’s traditionally been a sign that investors are expecting an economic downturn relatively soon.