This publication caught up with the Chicago-headquartered financial services group for its views about investment and its own business strategy.

Rises and falls in central bank interest rates, among other forces, have put “money in motion," creating opportunities for fixed income and other assets, Northern Trust argues.

The US Federal Reserve cut interest rates by 50 basis points last week, while the European Central Bank trimmed its key lending rate by 25 basis points on September 12. The Bank of England has held fire at its latest gathering, but the outlook appears to suggest that cuts are coming. 

When rates rose sharply after inflation spiked during the pandemic, it rapidly increased the attractions of holding fixed income and money market funds. Trillions of dollars, for example, flowed into the money markets sector. (See this interview with Aviva Investors.) With rate cuts now taking place, some of those flows might change, the US-headquartered banking and financial services group told journalists at a London briefing yesterday. 

“We will see money in motion,” Daniel Farrell, head of international fixed income, Northern Trust Asset Management, said at the briefing. Farrell spoke alongside Anwiti Bahuguna, chief investment officer of global asset allocation for NTAM, and John McCareins, head of NTAM, International.

Farrell reflected on the divergence of central banks' rate policy (Fed and ECB cuts, no change by the BoE). He expects the BoE will cut rates into 2025, probably at a pace of 25 bps.

Bahuguna said the firm has a “risk-on position in all of our portfolios and have had it there for the past five months.” In general, NTAM is overweight risk assets.

Within the equity space, NTAM is adopting a “barbell” stance – overweight US equities and emerging market stocks, while neutral on other developed countries’ equities, she said. US stocks are benefiting from a stronger economy, although valuations are relatively high; valuations for emerging market equities are attractive. 

“Growth is weakening quite sharply in the eurozone,” Bahuguna said, noting that some survey evidence points to further weakness, which is a cause for concern.

Within the fixed income slice of the pie, Farrell added that NTAM is overweight on higher-yielding bonds in the US, for example, while it is underweight the investment grade side.

NTAM has also been adding to infrastructure and certain other areas within the real assets space, the briefing heard.

Asked why US Big Tech stocks such as Amazon, Nvidia and Microsoft had at one point appeared to exert an unduly heavy weighting in the overall US stock market, Bahuguna said that a partial sell-off to these tech stocks had seen their overall market cap position fall relative to the wider stock market, a welcome step. “The markets are rotating without a big selloff in the market,” she said.

Positioning 
Talking about the business strategy of NTAM, McCareins said the firm is continuing to recruit, for example adding people to its fixed income business outside the US. 

“In the UK we are redoubling our efforts to build our business,” he said. More broadly, NTAM has been working on building capabilities in areas such as wealth management and family offices – a fact also noted by this news service in a recent interview.

“Changes in the UK,” he said – alluding to the election of a new, Labour-led government, and likely spending and tax changes – “will create opportunities because money will be in motion.”

Globally, NTAM has $152 billion of fixed income assets under management. “Fixed income keeps coming up as a large allocation that was once unloved.”

Bond vigilantes on vacation
During questions, this news service asked Bahuguna whether it was an issue that neither of the US presidential candidates – Donald Trump and Kamala Harris – appear to be publicly concerned about high US public debt and the state of the federal budget. 

Whenever there has been added debt issuance, there has not yet been a shortage of buyers for it, she said. “Bond vigilantes seem to be missing in action,” Bahuguna said. She used a term associated with the 1990s debt markets, when it was held that bond investors had the ability to rein in spendthrift governments. 

During questions, the ability of the US government to run high deficits/debt was contrasted with the experience of former UK prime minister Liz Truss, whose tax cut/spending package of September 2022 was associated with a sharp fall in UK government bond prices and worries about a run on sterling. This showed how the UK tends to be more internationally exposed when its public finances are perceived as unsound.