Do you have money sitting around? It’s time to invest in two dollar assets, says Janus Henderson

Attention, international portfolios: the time has come to increase portfolio risk, starting with global fixed income. This is the recommendation of international manager Janus Henderson, for whom monetary policy in the United States has been effective and the scenario is more favorable for risky assets, such as longer-term sovereign bonds and corporate credits.

“The rollercoaster ride that has characterized global bond markets since post-pandemic reopening may soon come to an end. This should encourage those with large amounts of cash on hold to increase their allocations to riskier assets. Typically, the first stop in this reallocation is the safer sectors of the market, including high-quality sovereign and corporate bonds,” says Janus Henderson portfolio manager Daniel Siluk.

The manager’s optimism is based on the good performance of the United States economy, which has presented consistent numbers in the labor market, consumption and income, amid falling inflation. Siluk hopes that the Federal Reserve’s forecast of three interest rate cuts in 2024 will come true, without a recession.

Longer Treasuries

Jim Cielinski, global head of fixed income at Janus Henderson, says the first more modest increase in risk may occur in the lengthening maturities of United States sovereign bonds (Treasuries). According to him, many investors do not have exposure to different time frames, as they chose to focus on money market funds (short-term funds that pay according to federal interest rates), which means they will have little exposure to the potential for gains if rates decrease.

“These investors don’t need to do much to increase interest rate risk. Focusing on longer issuance is worthwhile given the consensus view that the next move in interest rates in the US and most other major markets is downward,” says Cielinski.

In its international fund allocation portfolio, Inter presents a exposure of 18% in iShares 7-10 Year Treasury Bond ETF (IEF)the same exhibition recommended by manager Monte Bravo, in her April letter.

“The structure of expectations is aligned with the Fed’s stance, so we anticipate less volatility in Treasuries. The 10-year bond rate is expected to fluctuate between 4.0% and 4.25% in the coming weeks and fall to the range of 3.75% to 4.0% throughout the second quarter,” says Monte Bravo in a report .

Corporate bonds

Credit quality is the secret to ensuring good returns with corporate risk, according to Janus Henderson. “While a soft landing is most analysts’ base case scenario, we are undeniably at the end of a restrictive cycle. At this stage, we believe that quality is of primary importance,” says Cielinski.

The manager’s experts point out some critical points for investment grade assets to be a priority. The first highlight is geopolitical conflicts, which impact important flows, such as energy and agricultural products. Furthermore, 2024 will be a year with important elections, with the potential to increase the risk reading of some nations.

“A combination of sovereign bonds, high-quality corporates and securitized products can serve as a diversifier for a broader portfolio in the event of a sell-off in equities,” the experts write.

In Inter’s international allocation portfolio, the analysts’ choice is high yield bonds (higher risk) without investment grade. The chosen ETF is the iShares iBoxx $High Yield Corporate Bond (HYG)but with a small portion of exposure, 5%.