A Fidelity International money manager, George Efstathopoulos, has made a striking decision to sell off the majority of US Treasuries from the funds he oversees, banking on the belief that the world’s largest economy still has room to expand. Managing approximately $3 billion of income and growth strategies at Fidelity, Efstathopoulos executed this move in December, opting to pivot towards assets that historically perform well during periods of robust economic growth.
Efstathopoulos expressed confidence in the resilience of the US economy, asserting, “We don’t expect sort of a recession anymore.” He highlighted the diminishing likelihood of a downturn, suggesting that if this trend continues, discussions about Federal Reserve rate cuts in 2024 may become obsolete.
This shift away from Treasuries reflects a broader reevaluation among investors, who are reconsidering bets on interest rate cuts in light of the US economy’s strength. With strong inflation and jobs reports in recent months, some speculators even anticipate the possibility of the Federal Reserve raising interest rates.
Market sentiment has undergone a notable transformation, with traders adjusting their expectations for interest rate cuts in 2024. As a result, bond yields have risen, and 10-year US yields have climbed over 40 basis points since the beginning of the year, currently standing at 4.3%. Statements from Fed officials further reinforce expectations of prolonged higher rates.
Efstathopoulos’s decision to sell Treasuries coincides with a fading concern over US growth prospects. Bonds become less attractive in environments with heightened borrowing costs, particularly when prices reflect expectations of multiple interest rate cuts by the Fed.
While reducing exposure to Treasuries, Efstathopoulos also divested bonds from other developed markets, such as gilts and bunds. However, he maintains some holdings in inflation-linked US government debt and holds an idiosyncratic position in Austrian bonds.
Efstathopoulos remains optimistic about the US economy’s trajectory, citing signs of re-acceleration and the potential for expansion in developed markets. Recent data, including a drop in US jobless claims to a one-month low, underscore the economy’s strength.
Despite Efstathopoulos’s bullish stance, other firms like Jupiter Asset Management are adopting a more cautious approach, loading up on Treasuries amidst concerns of a potential hard landing following the Fed’s aggressive tightening cycle.
In terms of investment strategy, Efstathopoulos favors stocks, particularly US mid-cap and Greek stocks, following a profitable exit from bullish India equities. He also sees opportunities in Japanese banks.
Overall, Efstathopoulos’s strategy reflects a bullish outlook on stocks and a reduced exposure to bond duration, aligning with his assessment of a favorable economic landscape characterized by moderate growth and stable labor markets.
