Cash is now king for investor portfolios, according to Morgan Stanley 2022/8/25 下午6:37

Cash is king for investor

portfolios right now, according
to Morgan Stanley
PUBLISH ED M ON, AUG 22 2022 • 1:36 PM EDT

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A customer pays cash for a purchase at a Tractor Supply Co. store in Merced, California, on Tuesday, July 19, 2022.
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Cash is now king for investor portfolios, according to Morgan Stanley 2022/8/25 下午6:37

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That view is no longer accurate, according to Morgan Stanley.
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Not only is cash no longer a drag on portfolio yields given
where bonds stand, it’s slated to perform better than many
other asset classes.

“It offers a high current yield. It offers liquidity. If offers a

better 12-month total return than our strategy forecasts imply
for US equities, US Treasuries and either US IG or HY credit
(with considerably less volatility),” Chief Cross-Asset
Strategist Andrew Sheets wrote in a Sunday note.

Because of this, Morgan Stanley is generally overweight short-

dated fixed income in its Core+ optimized fixed income
portfolios. U.S. cash also outperforms other currencies, and
should continue to be strong, according to the bank.

Looking for yield

Looking ahead, Morgan Stanley will monitor the risk of
outflows caused by high yields on short-term safe assets, which
make it cheaper for investors to sell out of the market,
according to Sheets.

“For the moment, we are more relaxed about outflows, given

strong consumer finances, better recent cross-asset
performance and the simple fact that terrible 1H performance
didn’t trigger a rush for the proverbial exits,” he wrote.

One factor that may be limiting outflows is that not all cash is
the same – currently, U.S. 6-month Treasury bills yield about
3.1% while yields on 6-month U.S. bank CDs are less than 1%
and the average for a US bank savings account is 0.13%.

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Cash is now king for investor portfolios, according to Morgan Stanley 2022/8/25 下午6:37

“For gathering assets and adding yield, it seems like an

unusually good time to add value with money market
strategies,” Sheets wrote, adding that it also raises interesting
questions around bank net interest margins. The last time that
German bill yields were positive, the price to book ratio of EU
banks was 57% higher, he said.

To be sure, there is one asset class that Morgan Stanley does

see outperforming cash this year – emerging market sovereign
debt. The bank recently raised its rating on that asset class to
overweight.

Still, “the market is giving investors the opportunity to earn

~3% on safe, liquid T-bills, or ~5% on safe (but less liquid)
short-duration CLO AAAs, and somewhere in-between for
other AAA securitized paper that has cheapened as banks have
faced RWA constraints,” Sheets said, referring to risk-weighted
assets. “These aren’t the most exciting investments, but
sometimes it makes sense to take what the market gives you.”

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