A healthy pick up in volatility provides increasing opportunities for active managers
With the talk of trade wars and a shifting central bank landscape, volatility has returned to virtually all markets. In periods of market stress, we have witnessed not only significant correlation between asset classes but also within asset classes.
This is as true today as it was in the depths of 2001/2002, 2008, 2011, and the 2013 taper tantrum. During such challenging periods, there is generally nowhere to hide except for Treasuries – a traditional safe haven that carries its own risk related to its longer duration posture.
Over time, however, an increase in volatility should lead to a greater dispersion of returns among companies – making active management in credit all the more important.
We believe corporate credit, with its higher coupon and shorter duration posture, is well suited to protect investors from rate rises all the while providing income. An active manager will also be careful to avoid idiosyncratic, company specific issues.
Credit is a binary story after all – either a company defaults or it pays par at maturity. An active manager that avoids defaults should help investors achieve a solid coupon stream throughout the market cycle.
This document has been produced for information purposes only and as such the views contained herein are not to be taken as investment advice. Opinions are as of date of publication and are subject to change without reference or notification to you. Past results do not guarantee future performance. The value of investments and the income from them may fall as well as rise and is not guaranteed and investors may not get back the full amount invested.
Any research in this document has been procured and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and do not constitute investment advice. Opinions and statements of financial market trends that are based on market conditions constitute our judgement as at the date of this document. They are considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
Emerging Markets may be more risky than more developed markets for a variety of reasons, including but not limited to, increased political, social and economic instability; heightened pricing volatility and reduced market liquidity.
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