Cash has been comfortable. Here’s why it could be time to leave

Please note this interview was filmed 20th August 2026.

There are some places humans are perfectly happy to stay much longer than they should.

A warm bed on a winter morning. The couch when the remote is within reach. An airport lounge with free food and an open bar. And, for investors over the past few years, cash.

It's hard to blame them. Higher interest rates meant investors could earn respectable returns while barely venturing out on the risk spectrum.

The problem with getting comfortable is knowing when it's time to leave.

Ian Horn, Lead Portfolio Manager at global credit specialist Muzinich & Co, thinks that moment may have arrived.

"Part of that is because the market today is pricing in rate hikes from the central banks. And if you are of the view that perhaps they don't materialise, now's a good time to step out of cash and get compensated for those potential rate hikes through higher yields in the front end."

The magnetic pull of short-dated credit

Horn isn't suggesting investors need to venture dramatically further out on the risk spectrum.

Muzinich focuses on short-dated bonds, typically within one to three years of maturity. That limits exposure to movements in interest rates and credit spreads, while another feature of bonds approaching maturity can help keep volatility in check: “pull to par.”

Bonds are typically issued and ultimately repaid at their par value, typically $100 or $1,000. Their prices can move around in between, but as maturity gets closer, there is a natural tendency for the price to gravitate back towards its principal amount.

“We're buying bonds in those last two years of their life where you have this almost magnetic pull back to a hundred, and that keeps the volatility down in the portfolio."

Horn says around 25% of the fund is typically repaid each year, allowing capital to be continually recycled into new opportunities.

That simplicity is deliberate. Rather than buying longer-dated bonds and using derivatives to reduce duration, or loading up on floating-rate and structured credit, Muzinich achieves its short duration predominantly by simply owning bonds that mature relatively soon.

Banks, AI and looking where others won't

The challenge today is that obvious bargains are scarce.

Credit spreads are relatively compressed and dispersion is low, making it difficult for Horn to point to entire markets offering exceptional value. But one sector he does favour is banks.

Banks are producing strong earnings and, unlike many companies, are relatively insulated from some of the macroeconomic concerns hanging over markets, including tariffs, trade disruption and higher energy prices.

Horn also sees them as an overlooked beneficiary of AI.

“It's very easy to look at what sectors are under threat from AI, but what about sectors where it can really benefit from that? And the banking sector is one that has high costs and high budgets to invest in AI.”

Beyond banks, Muzinich often finds opportunities by looking in precisely the places other investors have become uncomfortable.

Autos are one example. Tariffs, uncertainty and Chinese competition saw the sector fall out of favour through 2024 and 2025, pushing up the risk premium across the sector.

Horn doesn't necessarily disagree with those longer-term concerns. Instead, his team asks whether those risks really matter to a bond that is going to be repaid in the next couple of years.

“We're not necessarily disagreeing with the market, we're just disagreeing about the risks in those short-dated bonds.”

Real estate provided a similar opportunity in 2022. Rising rates made owning long-dated property debt less appealing, but Horn argues there were still companies with enough cash and liquidity to comfortably repay bonds approaching maturity.

What could go wrong?

Short-dated doesn't mean risk-free.

Horn says the most difficult environment would be one where interest rates rise at the same time as credit spreads widen, with the two forces compounding each other - exactly what happened in 2022, one of the worst years in history for fixed income.

The difference today, he argues, is the starting yield. With the strategy yielding around 6% in Australian dollars, investors have a larger income buffer to absorb adverse movements in rates or spreads.

“Absolutely the fund can have negative years, can have drawdowns, but as long as we stick to this short-dated approach and we get the credit calls right, we know that the fund will deliver these steady returns and any drawdowns will tend to be short-lived.”

For investors who have grown comfortable in cash, Horn's argument isn't that they need to abandon the defensive part of their portfolio altogether. It's that they may not have to travel particularly far to find more yield.

Watch the full interview

In the full interview, Horn explains:

• Why short-dated credit could be a first step for investors moving beyond cash
• Where investors are currently being paid to take credit risk
• Why Muzinich favours the BBB–BB “crossover” part of the market
• How the strategy keeps its duration to around two years or less
• What “pull to par” means and why it matters for investors
• Why banks could be an overlooked beneficiary of AI
• How Muzinich finds opportunities in out-of-favour sectors
• What would need to happen for the strategy to have a genuinely bad year
• Where short-dated credit can sit within an investor's portfolio