Investors should give up second-guessing the Federal Reserve and focus on managing market uncertainty, according to BNP Paribas Wealth Management’s CIO Edmund Shing.
Speaking at ETF Stream’s European Ecosystem Unwrapped event, Shing said nobody can predict the Federal Reserve’s next move and investors should “lock in yield” over the next three to five years as spreads tighten on US Treasurys.
It comes as minutes from the Federal Reserve’s May meeting revealed they could be willing to hike rates should inflation remain stubborn.
“We have massive uncertainty in the market, we have an upcoming presidential election and that is going to inject a massive amount of volatility,” Shing said.
“We can talk about what the Fed might or might not do in 2025, but who has a clue? What we do know is volatility is likely to be there, the risk and uncertainty is there.
“That is why we say to clients, do not try and look through the next six months because your guess is as good as mine, my crystal ball is broken.”
He added conservative investors should “lock in yield” over the next three to five years but some areas of the market make him “extremely nervous”.
“European banks still yield an average of 7% and may not be as appealing following the Credit Suisse issue last year, but if I could lock in 7% for the next few years, most conservative clients would be happy,” Shing said.
Speaking on the same panel, Dan Scott, head of multi-asset at Vontobel Asset Management, added: “The whole focus on whether interest rates are going to come down is distracting.
“The Fed is playing both sides of the table, they could also turn off the stimulus of Treasury purchases through the banking sector, rather than thinking about a rate hike.
“We have an excess of liquidity sloshing around the system. Roaring Kitty is a very clear example of excess liquidity which highlights where we are on asset pricing, the cracks are appearing.”
Commodities are ‘very interesting’
As a result, Scott said multi-asset investors are required to create a more balanced portfolio beyond stocks and bonds.
“It is now about going into other asset classes and trying to diversify, it is interesting to see copper and all-time highs in commodities starting to gain traction as an allocation for diversification,” he said.
Rising geopolitical risks and sticker inflation have turned fund selectors towards commodities in recent weeks, despite a slow start to the year for the asset class.
Shing said he saw commodities as “very important” asset allocation tool in the future as global trends continue to gain traction.
“Geopolitical tensions, globalization trends and net zero tell me we are going to see a surge in demand for all manner of commodities, even coco, and the supply cannot respond,” he said.
“The next five years in these markets are going to be tight, but this is just the beginning.
“If you are positioned in the S&P 500 or Nasdaq think about the concentration risk, nothing lasts forever. Maybe it is time to chip a bit out month by month and rebalance to other asset classes.”
