GSAM’s Ashish Shah: It’s Time to Ditch Cash for Fixed Income

Holding onto cash means missing out on returns, says the CIO of public markets.

Illustration by II

Illustration by II

For investors, 2022’s volatility and uncertainty meant keeping cash on the sidelines.

That, according to Goldman Sachs, should change in 2023.

“A lot of investors last year were frozen because of the volatility and uncertainty,” said Ashish Shah, chief investment officer of public markets at Goldman Sachs. “As that uncertainty narrows, it’s really important for investors to take action.”

With interest rates rising along with inflation, the cost of keeping cash in the bank has risen, Shah said. However, investors now have more clarity about where both of those indicators are headed, meaning now is the time for action.

The Federal Reserve’s actions are becoming clearer, however: Rate hikes will likely continue, although they may also be smaller than the previous increases. What’s more, Shah said, the Fed is probably closer to the end of the rate-hike cycle than it is to the beginning. At the same time, rising inflation has begun to slow — in December, the rate fell by 0.1 percent, according to the U.S. Bureau of Labor Statistics.

With all of this in mind, Goldman suggests that now could be the time to add duration to a portfolio through fixed income. “Cash in the portfolio of investors is still incredibly high,” Shah said. “What we’re advocating [is that investors should] come out of cash in the bank and go into the market and capture some of this yield.”


He added that while bonds are generating income these days, they also have the ability to rally even further than they already have. What’s more, if the markets do slide into a recession, bonds can offer investors a degree of diversification.

So what part of the market should investors tap into? According to Shah, selection matters more now than it used to.

Investment grade credit and municipal bonds, particularly those with longer durations, could be effective in achieving portfolio goals, according to Shah. “In investment grade, the quality is very strong, and these companies have the ability to adapt to a modest recession,” Shah said.

Meanwhile, lower quality municipal bonds also have room to generate attractive yields — plus they’re tax exempt. “The yield pick-up relative to both corporates and treasuries, as you move slightly out the curve, is much better,” Shah said.

He noted that some of the relief provided by the federal government to municipalities during the pandemic has improved their standing and ability to pay back lenders. At the same time, they’ve been able to collect cash in the form of real estate taxes, thanks to the booming housing market. In other words, municipalities are stronger than they have been in quite some time.

Goldman Sachs also sees attractive opportunities on the emerging market corporate side of the business. These bonds have strong cash-flow generation, which allows them to de-lever relatively quickly, Shah said. At the same time, they tend to be more disciplined — these corporations may be more used to crises, inflation, and volatility.

Regardless of the strategy, Shah emphasized the importance of moving away from holding cash.

“The cost of cash now is very high,” he said. “Making sure that you’re earning a fair return on your cash and moving that cash out the curve is really important for investors.”