Stable Value Assets

Safe liquid assets are used to meet near term liabilities (liquidity) and act as a hedge during periods of market turmoil (solvency).

Safe liquid assets are money or money-like assets such as:

  • U.S Treasury Securities
  • Bank Reserves
  • Agency MBS

Now safe liquid assets do not always maintain purchasing power. Meaning, your investment is vulnerable to inflation or rising prices. Banks and other financial institutions hold enormous reserves of safe liquid assets for regulatory reasons. Other investors hold them to hedge; investors tend to flood into safe liquid assets when markets crash. Existing safe liquid assets, U.S. treasury securities and Agency MBS, are priced on liquidity not solvency risk. As a result, investors should use them for liquidity management. Not solvency.

Stable Value Assets (“SVA”) fill that solvency gap. SVAs monetize well in real terms. They generate long‐term, predictable, and persistent real income that appreciates with inflation.

Examples:

  • Commodities
  • Minerals & Mining
  • Energy
  • Agriculture
  • Real Economy Essentials

SVAs reduce solvency risk far better than fixed income. They convert well to cash and can solve some liquidity needs. Expected cash flows out of SVAs are stable, dampening volatility around pricing. SVAs are driven by the real economy and consumption. The government can’t “print” more of them. SVAs are inputs for other parts of the economy allowing them to float with inflation. They are the inflation!

Tactical Thoughts

  • SVAs allow you to invest in run-off assets… like carbon intensive businesses.
  • SVAs would be an good avenue to invest in sustainable assets.
  • SVAs can also be called tangible assets or real assets

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