NEW YORK: The era of high cash allocations may be nearing its twilight as Federal Reserve interest rate cuts, even at a modest pace, are poised to encourage investors to pivot back toward riskier assets, according to Martin Small, BlackRock’s Chief Financial Officer.
Speaking at the Goldman Sachs US Financial Services conference, Small highlighted the likely impact of a softening rate environment on investment behavior.
“Even modest rate cuts are expected to ignite significant re-risking among investors,” he noted, adding that declining yields in money market instruments like T-bills – currently offering over 4 per cent – would steer investors back to equities and bonds.
Despite this potential shift, cash remains a favoured safe haven for many. Money market fund assets climbed to $6.77 trillion last week, compared with $6.3 trillion in early September, as reported by the Investment Company Institute.
Cash is still a refuge
Small attributed this stickiness to ongoing geopolitical and economic uncertainties, stating, “Cash is still seen as a refuge amid global instability.”
The Fed’s recent easing measures, including a 50-basis-point rate cut in September followed by a 25-point reduction in October, have tempered earlier expectations of aggressive monetary loosening. Investors now foresee rates settling around 3.7 per cent by the end of 2025 – nearly a full percentage point above projections from September.
Still, Small emphasised that cash-heavy portfolios are underperforming more diversified strategies blending equities and bonds. The “fear of missing out” on market gains, he said, is gradually driving investors to rebalance their portfolios.
BlackRock has already witnessed this shift, with fixed-income products such as bond ETFs garnering substantial inflows this year. While Small described these movements as steady rather than overwhelming, he noted they marked a return to more normalised investment behaviors.
“Investors are cautiously stepping back into fixed income, reflecting a balanced response to evolving market conditions,” he concluded.
