Investors dump TINA in favour of TARA

For much of the past decade, investors have been stuck in a relationship with TINA – not “Simply the Best” on repeat or a girlfriend you’ve fallen out of love with, but the belief that “There Is No Alternative” to equities.

Because for a good 10-15 years after the global financial crisis, bond yields stayed at rock bottom offering very little in the way of compensation for investors. At one point, bond holders were paying Japanese and German governments for the privilege of lending them money! Equities – and mainly US ones at that – were the only place to make money.

Then along came the pandemic, inflation, and the market sell-off in 2022. And, like any relationship, the break-up was a painful experience for everyone involved. Stock markets around the world plummeted, bond yields rose and pretty much every asset class fell in value. There was loss, grief, and uncertainty about what the future would hold.

TARA, TAPAS & TIARA

As one door closes, another opens though, and investors have started to realise that there might be new possibilities emerging. And along with new opportunities comes new acronyms!

Goldman Sachs has found itself a new girlfriend already and dubbed the shift “TARA” – short for “There Are Reasonable Alternatives”.

Deutsche Bank is more optimistic (or hungry for change) and has gone for “TAPAS” – There Are Plenty of Alternatives.

And not to be left out in a Coronation year, Insight Investment has opted for TIARA – “There Is A Realistic Alternative”.

So, what are these alternatives?

For the first time in years, cash, bonds, and commodities are looking more attractive.

Cash

Having been paid a pittance on our cash savings for the past decade, some easy access accounts are now paying over 3% in interest*. If you are willing to tie your cash up for a couple of years you can get over 4%*. The real value of your savings is still being eaten away by persistently high inflation, but they are not rates to be sniffed at and a welcome relief for those not wanting to take any risk on their investments.

Bonds

M&G, whose Strategic Corporate Bond fund is Rated by FundCalibre, believes bond investors have entered 2023 in much better shape, with current yields looking compelling. “We see especially good value in investment grade credit, which we believe offers natural diversification qualities and a source of resilience during uncertain market conditions,” the company said.

And the yields on some bond funds are looking particularly attractive today.

TwentyFour Dynamic Bond, Liontrust Sustainable Future Monthly Income Bond, and Baillie Gifford High Yield Bond funds all have distribution yields north of 5.6%**, for example.

As and when interest rates peak and start to fall in the developed world, the price of bonds should go up, also allowing for capital gains to be made.

Commodities

Commodities are mixed bag when it comes to investments. They include agricultural products like wheat and grain, oil and gas, precious metals, and industrial metals. The fortune of all commodities comes down to supply and demand and, as we have seen over the past couple of years, when supply is less than demand, the price of these commodities rises.

Evy Hambro and Olivia Markham, co-managers of the BlackRock World Mining Trust, believe we have just started a “multi decade period of strong demand for commodities”.

This is because of the essential role commodities play in our lives now and how they will help us transition to a ‘net zero’ future. This is a view shared by the managers of the TB Amati Strategic Metals fund.

Keeping your investment options open

The beginning of a relationship is often filled with excitement and anticipation. But investors who got burnt last year may be nervous of trusting their money to one particular area and may instead prefer to keep their options open.

One way to do this is to entrust your money to a professional investor who is paid to research all those alternatives and invest in the best opportunities. These multi-asset managers, who run funds such as CT MM Navigator Distribution, Aegon Diversified Monthly Income, and Rathbone Strategic Growth Portfolio, can spread your investment across a range of assets and adjust the allocations according to the prevailing environment.

*Source: moneysavingexpert.com, 12 April 2023
**Source: fund factsheets, 28 February 2023

_{Photo by Surendran MP on Unsplash}