Catalyst News

Maximizing Investments in a Pandemic Environment

by Catalyst Corporate | Oct 13, 2020

With so much uncertainty hanging over the nation currently, it’s hard to speculate about what lies ahead – nevertheless adequately prepare an investment strategy positioned for unforeseen risks or future growth opportunities. But now is the time to address such items, said Catalyst Corporate Investment Officer John Kirby at last week’s Economic & Payments Forum.

Kirby’s presentation, “Maximizing Your Investment Opportunities in the COVID-19 Era,” offered credit unions high-level takeaways for adjusting their portfolios to the “new normal.” Over 325 credit union attendees tuned in to the session, as he discussed strategic guidelines for post-pandemic investment planning.

How can credit unions prepare? In the words of Former Secretary of Defense Donald Rumsfeld, Kirby suggests focusing on the “known knowns.” When applied to this scenario, the concept is simple: rather than focusing on all the uncertainties, hone in on what has been established about the current economic environment.

“The message resonates because of how unprecedented everything has been so far this year,” Kirby said, “From an investment strategy perspective, it also makes sense to base decisions on the ‘known knowns’, as opposed to speculating on what may or may not come next.”

According to Kirby, here is what we know about the economy at this time:  

  • The nation is still in a recession, with discrepancies between the white-collar and blue-collar sectors driving a K-shaped recovery.
  • The FOMC’s quantitative easing purchases are expected to continue for the foreseeable future, or at least until the pandemic is over. The Fed has added about $7 trillion in assets to their balance sheet since March, largely consisting of credit union-friendly bonds.
  • And the biggest takeaway of all – it could be another three to five years before the Fed implements a rate hike.

“Fed leaders all over the country have explicitly stated they won’t consider raising rates until 2023, and their dot plot reflects that as well. The Fed’s recent summary of economic projections suggests that inflation won’t reach the recently established two percent average inflation target with simultaneous full employment until 2025,” he said.

Kirby noted that the abundance of Fed purchases, combined with an overall increase in investor liquidity, has severely reduced the available supply of investment options. And as long as the yield curve remains steep, short term rates will stay low, and most investment sectors will continue to offer strong value relative to cash.

Armed with these economic “known knowns,” credit unions can map out an investment plan to weather the “COVID-19 storm.” He then examined some of the most popular investment sectors, including mortgage backed securities (MBS), taxable municipal bonds, bank notes, certificates of deposit, agency bonds and loan participations, followed by a thorough overview of what to look for in each sector.

Ultimately, it all comes down to optimizing credit union cash positioning to improve earnings without taking on additional risk, said Kirby. “Talk with your investment officer to determine the most effective investment mix based on the current economic climate and your balance sheet needs.”

For an in-depth look at Kirby’s presentation, or any other session content from the 2020 Economic & Payments Forum, check out the on-demand section of the Forum Hub.