(Bloomberg) — KKR & Co. chief macro strategist Henry McVey said investors are poorly positioned for US economic growth that will be stronger than expected this year, as well as tamer inflation.
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Money managers should take advantage of volatility stemming from the recent failure of several US banks and slowdown in public debt markets by moving into riskier assets, McVey said Wednesday in KKR’s midyear macroeconomic outlook. In particular, they should seek out assets with collateral protection that offer steady cash flows such as debt backed by mortgages or aircraft leases.
High-quality liquid credit, real estate credit and preferred and convertible securities are also attractive, and investors should boost their cash holdings to move quickly as opportunities arise, he said.
“The macro headlines right now are as daunting as any time I’ve seen in the past 31 years doing this business,” McVey, the chief investment officer of KKR’s balance sheet, said in an interview, citing concerns over geopolitics, inflation and recession risks. “At the same time, there are some really interesting things you can do as an investor and make attractive returns without taking a lot of risk.”
KKR’s vast operations, with $510 billion of assets under management as of March 31, give the firm a broad window into the state of the economy. It owned stakes in 127 businesses at year-end, including health care, real estate, payments and pipelines, as well as a mail-order contact lens company and TikTok owner ByteDance.
GDP Growth
The global economy will undergo an “asynchronous recovery,” with each region facing slightly different economic challenges, requiring investors to differentiate strategies, McVey said.
US real GDP will grow 1.8% in 2023, compared with the 1.1% average forecast of economists in a May survey, and inflation will be 4%, versus the average consensus of 4.1%. Still, KKR projects that inflation will remain higher in 2024, driven by services and persistent labor shortages.
The S&P 500 has bottomed out for the current economic cycle, McVey wrote. Market indicators including homebuilder sentiment and M&A volume suggest the US economy is in a mild contraction, but the downturn will be mild and short-lived amid tight labor conditions and robust fiscal policy, McVey wrote.
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