There Is No Alternative? - Q1 2025
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There Is No Alternative?
An economically challenging year for much of the world has seen the notion of "There Is No Alternative" (TINA) to the US gain significant traction. Investors have flocked to US assets not only because of attractive fundamentals but because global alternatives appear unappealing. But as with all narratives, it's worth unpacking to see what's driving the current consensus and what could change over the course of 2025.
Additional highlights
- Pension Solutions Monitor: We estimate that pension funding ratios increased over the fourth quarter of 2024. Based on market movements, the average funding ratio is estimated to have increased from 110.0% to 111.1%.
- Fixed Income: With spreads in corporate credit hovering around historical tights, it is worth asking how much upside remains in the asset class. The answer, unsurprisingly, is more nuanced than a time series chart would lead one to believe. For the last few years, the tussle between yield and spread investors has been relatively one-sided. Flows into investment grade and high yield credit have remained robust, as asset allocators have prioritized elevated all-in yields over paltry risk premiums.
- Equities: The recent volatility and shallow sell-off seem to be a response to growth data that was so good it’s bad, causing a sharp rise in longer-dated rates, particularly real yields. Our view is that the rates move is overdone; we have maintained both our long equity and long duration views for the time being.
- NEW - MSCI Rebalance Predictions: Of the 31 total constituent changes in the fourth quarter, we accurately predicted 29 of them. And, after accounting for two incorrect predictions, our rebalance accuracy score was 87, which bested our third quarter accuracy score of 79.
- NEW - IG Private Credit: As pension plans continue to adapt, incorporating IG private credit may offer a compelling opportunity for enhanced returns, greater diversification and robust structural protections. This strategic shift not only aligns with the current market dynamics but also ensures the potential for long-term financial health and resilience for pension portfolios.
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