According to Joanna Gallegos, a shift towards non-U.S. assets is driven by currency dynamics and performance, not a loss of confidence in the U.S. market. 'The dollar pressure is putting more of a view on non-U.S. assets,' Gallegos said, adding that investors are looking to capitalize on past returns.
The U.S. trade is not disappearing, Gallegos reassured, despite a weaker dollar, fiscal health worries, and impacts from President Trump's foreign policy that are prompting diversification moves.
Gallegos, co-founder of BondBloxx, highlighted emerging markets as the best performers in fixed income, capturing investor attention alongside ongoing discussions about shifting focus from U.S. to foreign stocks and bonds.
Morningstar data from January confirms that U.S. investors aren't abandoning domestic markets. U.S. ETFs attracted a record $156 billion inflow, while international equity ETFs hit a new high with $51 billion in net inflows. Taxable bond ETFs also saw significant inflows, led by Vanguard's bond funds.
Despite talks of a private credit bubble, the U.S. is still viewed as offering a robust fixed-income market with unmatched opportunities, according to Gallegos. Investors continue to expand their portfolios with international assets but maintain a core in U.S. holdings due to a resilient economy, steady earnings, and sound corporate finances. The bond market appears healthier with a steepening yield curve.
Todd Sohn of Strategas Securities highlights that the shift in fixed-income investments may overshadow equity changes. With interest rates potentially declining, significant capital held in money markets could move into bonds.
Gallegos noted that investors don't need to overreach for yield, especially in investment-grade credits with attractive returns. She emphasized that bonds are evolving from being just a safety net to offering valuable opportunities for income and growth.
Source: VettaFi