Alger Breaking Views: Allocating Assets for the Future
With increased government intervention, high debt levels, and slow economic growth, we believe investors may find benefit in allocating to stocks. In this video, Alger Director of Market Strategy Brad Neuman discusses the impact of investors potentially demanding higher interest rates to mitigate the mountains of debt that may likely be built up during the current crisis. ​​​ ​


  I recently co-authored a piece with Matt Weatherbie, the esteemed CEO of Weatherbie Capital, in which we discuss making asset allocation decisions for the future.

With increasing government intervention, combined with large debt levels and slow economic growth, we believe interest rates are unlikely to move materially higher in the short term. It may be that as negative interest rates roll through the world the amazing desire to pay to lend will wash up on U.S. shores, transported from Japan and Europe by the global capital seas. 

While no one knows how much debt issuance and quantitative easing bond investors will tolerate before beginning to demand higher interest rates, we believe it seems likely that they will revolt at some point. The demand for higher interest rates and ultimately society’s desire to mitigate the mountains of debt that have been built up may ultimately manifest in higher inflation and interest rates.

In our view, the role that cash and bonds play in traditional asset allocations may become diminished in an environment characterized by deflation at first and then possibly inflation over the long term. In a deflationary environment paying to hold cash or to lend may not make sense. In an inflationary environment, the value of cash will be eroded and bonds will suffer at the hands of higher interest rates.

Stocks make the most sense to us in either environment. In an uncertain, probably low-trajectory recovery, high-growth companies will be uncommon and increasingly sought after, in our view.

Source: Federal Reserve, Bank for International Settlements and Alger Analysis

The views expressed are the views of Fred Alger Management, LLC and Alger Management Ltd. as of June 2020. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by Fred Alger Management, LLC. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. 

Risk Disclosures:  Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.

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