2020 should see liquidity products assuming their traditional role in portfolios.
The stereotype of trading in the liquidity markets is that it’s a ho-hum job. No battling for deals like those in a stock exchange; they just grab whatever offer that comes their way. Well, not only is that unconditionally wrong, 2020 might force traders for money markets and the like to be as fierce as those in any sector.
There will be periods when the yield curve offers a little more value, giving portfolio managers, analysts and traders an opportunity to set themselves apart.
With the Federal Reserve on hold, the yield curve relatively flat and the economy on a low-growth path, liquidity-market firms will contest for every basis point they can get. Relative outperformance will go to those best at identifying situations that can lead to an advantage. There will be periods when the yield curve offers a little more value, giving portfolio managers, analysts and traders an opportunity to set themselves apart. I don’t get to talk about our traders often enough. With an average of 16 years of experience and a variety of expertise, I have the utmost confidence in them.
Key to this is how much money flows into the liquidity sector. Perhaps it won’t rise to the level of the tremendous growth of 2019, especially in the prime space, but liquidity products should experience solid inflows. We anticipate growth in the low double digits. There are plenty of people who are uncomfortable about the ebullience of the equity market right now or foresee renewed volatility stemming from the presidential election. If they want to take some of their winnings off the table, the liquidity markets can provide a good home for them. In the current environment, they can offer a competitive return. In this regard, 2020 should see liquidity products taking their traditional role of being an asset class that works in tandem with the equity and fixed-income portions of an investor’s portfolio.