If I were an active-style fund manager, how would I do the asset allocation for the next 12-months? My answer would be simple adding allocation to short-term US Treasury.

As of March 21, the US 1-Yr Treasury yield is trading at around 4.4%, which is in its 5-years historical high despite recent declined due to the collapsed of SVB bank. If currency exchange rate is a concern, then fully hedge USD exposure can be easily done with a forward contract as well.

Some aggressive growth investors dislike this idea because chasing a high PER stock is addicted. In my point of view, those investors who are still expecting stock market, especially tech stocks, will continue to perform as in the pandemic era is highly subjected to conservatism bias, which is a cognitive bias that people inappropriately incorporate new information so maintain their previous forecast.

First of all, higher risk free rate will translate to higher equity discount rate and therefore lower down equity valuation. We are moving into the expensive costs of capital era, the collapsing of SVB bank is a sign that tech companies are no longer to do fundraising as easy as in the past. I guess many tech companies which are operating in loss will find in trouble soon.

For most of the Malaysian retail investors, we may not so lucky like American, because our interest rate is still below US. However, to safe guard our hard earned money, we still can use fixed deposit for short term purpose. I also noticed that there are two banks not to mentioned name here offer promotional fixed deposit rate up to 3.9% to 4.2% per annum.

If high interest rate should persist for longer period, rather to risk our money to stock market, I would say allocation to money market is a wiser investment decision.

Original published on:

​https://streetanalystblog.wordpress.com/2023/03/22/reconsider-cash-as-an-asset-class/​