Unchanged rates provide high-yield opportunities

Published Date: 03/27/2024
Source: By Luigi Marinus, PPS Investments Portfolio Manager

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On Wednesday 27 March, the Monetary Policy Committee (MPC) announced their latest decision on short-term interest rates. Although inflation remained within the 3% - 6% target band for the last nine consecutive months the latest print of 5.6% is above the 4.5% unofficial level that the MPC targets. This sticky inflation has been the contributor to the repo rate being left unchanged at 8.25%.

The global narrative has been that the US Federal Reserve will reduce interest rates in 2024 and other countries will follow shortly thereafter.

PPS Investments have remained cautious in allocations with regard to this outcome, believing that this may take longer to play out. As a result, the allocation to cash remains overweight across portfolios which benefit from the high yield.

The PPS Enhanced Yield Fund, which is the cash building block, currently offers a 9.7% 12-month forward yield with very little interest rate risk. There may be some apprehension with markets impatiently waiting for the first rate cut, but there are also some opportunities that the PPS funds can take advantage of while short-term interest rates remain unchanged.

With the likelihood of rates remaining relatively high, investors should be asking their financial advisors if their personal portfolios are effectively diversified to benefit from the high yield opportunities the market is providing.