Credit continues to offer opportunities against a solid backdrop for fundamentals
We believe we are now in a period of regime change – both in terms of rates and volatility – as central banks like the US Federal Reserve move towards rate policy normalization.
Europe is later to the game as the European Central Bank (ECB) has committed to quantitative easing (QE) until September with many expecting QE to end by December. We do not believe the ECB is likely to raise short-term rates until after the end of the QE programme.
Given solid macroeconomic data, generally positive corporate earnings/outlooks, well capitalized corporate balance sheets and a benign default outlook, we do not believe that credit is an area of risk at the current time. Instead, we consider rates (longer-duration bonds) and passive investment strategies to be areas of concern.
We find exposure to less duration sensitive global fixed income (like high yield, loans and private debt) affords investors a degree of protection against rising rates while providing coupon income. Moreover, a weak US dollar has created some opportunities for US dollar investors investing in euro-denominated debt due to the pick-up received when euros are hedged back into US dollars.
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.
Issued in Europe by Muzinich & Co. Ltd, which is authorised and regulated by the Financial Conduct Authority.