Black History Month and Fixed Income Investing

Colin Walker: I'm Colin Walker, regional director here at Allspring Global Investments, and welcome to SpringTalk. Today, we have a special episode for Black History Month and I'm joined by Chi Enworom, wealth specialist here at Allspring. Thanks for being here, Chi. I'm excited for our conversation.

Chioma Enworom: Likewise, Colin. It's great to be here.

Colin: And we know black history isn't limited to a month, right? Because history is happening 24/7. It's something that should be recognized all year long. We continue to have firsts to this day in the black community and within the industry. And I wanted to ask you, are there any black trailblazers in the industry that have inspired you along the way and who are they?

Chioma: Valerie Mosley and John Rogers inspire me because they both own their own investment firms and their passion for teaching financial literacy is something I truly admire. How about you, Colin? Who inspired you?

Colin: Yeah, some of the people that inspired me along the way are investors like Bob Johnson, Daymond John, Robert Smith, and Chris Gardner. And I think we all know Chris Gardner from the movie, The Pursuit of Happyness. He's actually from my hometown, Milwaukee, Wisconsin, and I love the part in the movie where Chris has to push through all of the challenges that life throws at him and accomplish the Series 7, right? And to watch him go through those challenges and come out the other side and become successful is something that really inspired me. So, Chi, tell us how you got started in the industry. Can you share a little bit about your background?

Chioma: Sure. Well, my journey started in high school. I decided to take a personal finance elective and the subject just started to grow on me over time. After I graduated, I decided to go to business school to study finance. And after college, I decided to start my career at Allspring a little over ten years ago. I've held several different roles over the years and I'm currently a wealth specialist. How about you, Colin? It'll be great to hear your background and your role here at Allspring.

Colin: Yeah, not too different than yours, Chi. In college, I had a friend whose father was a financial advisor. And I was always really interested in the industry and in finance. And he convinced me to take a finance class. And so, I was hooked since then. Started my career right out of college at Allspring's predecessor and now I've been here going on 17 years. So, Chi, let's shift gears a little bit here. As a wealth specialist, you have a keen understanding of investor trends in the wealth management industry. Where are you seeing opportunities today?

Chioma: Well, some of the major trends that are currently unfolding in the wealth management industry today are the Great Wealth Transfer and the growing need for customized solutions that address each client's unique tax needs at scale. We believe retail separately managed accounts, or SMAs, as we like to call them, provide a compelling solution for wealth managers who are seeking to meet their clients' needs and their clients' heirs' needs, where they are today, and where they may be headed in the future. SMAs can also offer several advantages for investors that include a higher level of portfolio customization, greater transparency and tax efficiency based on each client's unique risk tolerance, investment time horizon, and tax objectives. And as you know, Colin, SMAs can be a very effective way for investors to transition and manage their assets in a tax aware manner. So, Colin, I know you spend a lot of time with our clients, as well. What sort of questions or concerns are you hearing from them in regard to fixed income?

Colin: Yeah, many of the clients that I interact with are not really sure what to do with the amount of cash that they're currently sitting on. With the rising money market yields and the potential now for those yields to fall, they're really not sure when or how to position onto the curve and into fixed income. They appreciate the higher yields that they're getting on the front end of the curve, but they're hesitant to move out any further because of the negative returns they saw in 2022. And so, based on that, are there any investment vehicles or ways they can position in fixed income?

Chioma: So, as we all expected, the Federal Reserve (Fed) decided to keep its key interest rate, also known as the Federal Funds Rate, unchanged at 5.25% to 5.5%. We believe that as long as core inflation continues declining towards their 2% target and wages remain anchored as the labor market softens, the Fed will start cutting rates later this year. So, in the meantime, this just means that rates will continue to move sideways and stay at these elevated levels for longer. This gives fixed income investors a little bit more time to actually get ahead of any potential Fed cuts this year, take a portion of their cash, and diversify their duration exposure beyond money market funds into intermediate and longer duration fixed income securities. That way, investors can lock in some of the highest yields we've seen in over a decade across the yield curve and potentially benefit from price appreciation as the yield curve normalizes. So, for fixed income investors who have a longer investment time horizon, a popular strategy to consider is a high-quality bond ladder SMA. Bond ladder SMAs give the investor the ability to own a basket of individual bonds with staggered maturity dates, all in one portfolio. And it can be an effective solution for investors who are seeking to earn a steady income stream, diversify their risk, preserve capital, and personalize their exposures. So, whether investors are seeking to lock in yields across the yield curve or target a specific maturity range, bond ladder SMAs can be a compelling solution. Another strategy to consider is actually layering your duration exposures across the yield curve. Investors can keep a portion in cash, so that'll be your first layer. Then, allocate a second layer to a high quality, short-term bond strategy. And then, allocate your third layer to a high quality, intermediate term bond strategy. And then, finally, add your fourth layer into a high quality, longer duration bond strategy. So, with the time we have left, Colin, can you share any final thoughts with our listeners today?

Colin: Yeah, Chi. I think you make a great point. As yields come down, if you're sitting in cash, you only lose the potential for total return in the form of yield. But on the other hand, if you move out onto the curve, as we learned in the Series 7 exam that we took along with Chris Gardner, if you position onto the curve, as yields go down, prices go up, right? And so, you've got the opportunity as the yield curve goes back to a more normal shape to get better total return. So, I think you make a great point. Chi, I want to thank you for being with us today. I appreciate your insights. And that wraps up our conversation.

Chioma: You're welcome, Colin. It was a pleasure.

Colin: And for our audience, thank you for joining us on SpringTalk.

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