Investing in an uncertain and potentially flat interest rate environment

The current environment presents a number of challenges for investors. Geopolitical uncertainty has arguably not been this high for over two decades and while the global economy appears reasonable, inflation is still high despite coming down from the post-Covid highs, while the outlook for growth is patchy and appears heavily reliant on AI investment.

Recent sharp moves in oil prices introduce renewed upside risks to inflation and interest rates, while softer economic data simultaneously point towards a potential slowdown in growth, creating an unusually wide range of plausible rate outcomes.

Looking at cash and liquidity funds, what is the best way to manage this uncertainty? For both treasury investors and those using cash / liquidity as a core element of a balanced portfolio, interest rate turning points are always times to reflect and adjust strategy. At present the outlook for policy rates is unusually volatile, and there are arguably credible arguments for higher, lower and flat rates. This makes a strong directional positioning very difficult to justify.

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Investment risks

Investment Risk: The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.

Credit Risk: Should the issuer of a fixed income security become unable to make income or capital payments, or their rating is downgraded, the value of that investment will fall. Fixed income securities that have a lower credit rating can pay a higher level of income and have an increased risk of default.

Interest Rate Risk: Fixed interest securities are particularly affected by trends in interest rates and inflation. If interest rates go up, the value of capital may fall, and vice versa. Inflation will also decrease the real value of capital.

Stable Net Asset Value Risk: The fund is not the same as a bank deposit account. It is designed such that it will seek, for the Distribution Classes, to maintain the Net Asset Value per share at a fixed value by distributing income from the fund as it arises. However, whilst the fund’s investments are reasonably believed by the Investment Manager to be of high quality, there is always a risk that an underlying issuer could default or otherwise fall in value, resulting in the fund being unable to maintain the Net Asset Value per share at a fixed value and therefore a loss of capital will occur. The risk of loss is to be borne by the investor. There is no representation or warranty that the fund will be able to maintain a stable Net Asset Value per share.

Inflation risk: Where the income yield is lower than the rate of inflation, the real value of your investment will reduce over time.

Money Market Fund Risks: A Money Market Fund is not a guaranteed investment, and is different from an investment in deposits. The principal invested in the fund is capable of fluctuation and the risk of loss of the principal is to be borne by the investor. The fund does not rely on external support for guaranteeing the liquidity of the fund or stabilising the Net Asset Value per share.

No guarantee: The funds are not a guaranteed investment. Principal fluctuation: An investment in the funds are different from an investment in deposits. The principal invested in the fund is capable of fluctuation in value.

No external support: The funds do not rely on external support for guaranteeing the liquidity of the fund or stabilising the Net Asset Value per unit or share.

Risk of loss: Any risk of loss of the principal is to be borne by the investor.

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.