Late-cycle markets can unnerve high-income investors. But we see ways to generate a healthy level of income while potentially decreasing overall portfolio volatility.
With bond yields near record lows, can fixed-income markets generate solid returns in 2020 without forcing investors to take too much risk? From a fraught geopolitical landscape to a global slowdown, we assess today’s biggest challenges—and opportunities.
It’s easy to get spooked in late-cycle markets. But we think there’s a way to de-risk your portfolio and still generate a decent level of income—no magic spells necessary.
Want to reduce overall portfolio risk without giving up on income? Consider high-yield bonds.
The S&P 500 Index hit an all-time high on April 23, thanks to improving investor optimism. But for some equity investors, market highs signal a good time to reduce downside risk. Shifting a modest allocation into US high yield is an efficient way of doing just that—significantly lowering overall risk while only modestly curbing potential returns.
The market has grown less anxious about an imminent wave of bond downgrades. That’s good, because overestimating the risk can lead to missed opportunities. But the risk hasn’t disappeared, making research as important as ever.
Should you be concerned that high-yield bonds didn’t predict last year’s equity market selloff? We don’t think so. In fact, we think investors should consider adding high-yield exposure to reduce overall risk.
The media and some market observers are bracing for a blizzard of BBB-rated bonds to get downgraded to junk as the credit cycle turns. We expect it will be closer to a flurry.
First, the bad news: high-income investors should saddle up for another bumpy ride in 2019. Now the good: with challenges come opportunities—and we see plenty on the horizon for investors who take the long view.
A dramatic fall in oil prices, followed by a sell-off in high-yield energy bonds—is it time to worry about oil and gas companies again? Quite the contrary. The North American issuers that make up most of the world’s high-yield energy market are in a better position today than they have been in years.
Crowded trades have become all too common in fixed-income markets. But running with the crowd is risky, particularly when it comes to illiquid assets like bank loans that may not be easy to sell during a market downturn.
The digital revolution took its time getting to fixed income, but today it’s transforming the investing landscape. Already, major advances in technology are helping early adopters gain unique insights and act faster in markets where speed and alpha are increasingly and inextricably linked.
At long last, fixed-income investing is entering the digital age—and investors should pay close attention to what their asset managers are doing to keep up. From better pricing to better solution design, the digital revolution that’s transforming the fixed-income management landscape can lead to a host of benefits.
Investors tend to think of floating-rate bank loans as the cure for rising interest rates. But our research suggests that a rising-rate environment has historically been the worst time to buy loans.
US investment-grade corporate bonds look cheaper today than their lower-quality counterparts in the high-yield market. Is this the buying opportunity of a lifetime? Not exactly. A closer look reveals there’s actually method to the madness.
A bond allocation is like a railroad. Credit is the locomotive that generates high returns, duration the track that keeps the train in line. Take the track away and you risk running your portfolio into the ditch. That’s why duration-hedged credit strategies are dangerous.
High-yield investors bracing for a downturn in 2018 can relax. By some metrics, high-yield companies have rarely looked better. The way we see it, investors who do their homework can still profit in this environment.
Investors often say they’re worried about having too much high-yield bond exposure so late in the credit cycle. But many are still chasing returns in equities and other assets with even higher risk. We’ve got a better idea.
Market conditions may change in 2018, and that’s good for income-oriented investors. Yes, interest rates are rising and some assets look expensive. But there are still plenty of horses to ride in this race.
As 2018 approaches, investors may want to take some time to reexamine their high-income strategies. We’ve got some advice: Be selective. Be diversified. And, perhaps most importantly, be patient.
Tighter monetary policy in advanced economies. Stretched asset valuations. These are anxious times for income-oriented investors. But don’t worry—it’s still possible to generate income without taking on unnecessary risk.
High-yield bonds have had a good run. But with interest rates rising, has the market run out of road? Don’t bet on it. The sector usually motors ahead when rates rise. And when it does decline, it rebounds rapidly.
Bonds in the US high-yield market are as varied as the creatures in the sea. Invest carelessly, and you may get stung. But with careful analysis, investors can uncover gems at any stage of the credit cycle.
Should tighter monetary policy on both sides of the Atlantic worry bond investors? We don’t think so. Bonds have historically delivered positive returns when interest rates rise—particularly when they rise gradually.
Looking for a way to increase your US exposure without adding equities? Need more income but worried about rising rates? US high-yield bonds deserve a place in your portfolio.
Not long ago, we suggested that investors who wanted to make their equity portfolios less volatile add a dash of high-yield bonds. There’s a similar low-volatility strategy available to high-yield investors: shorten duration and focus on quality.
There’s value and opportunity in European high-yield bonds today. But if you’re considering using an exchange-traded fund (ETF) to tap into the market, you may want to think again.
These are uncertain times in markets, and that creates a dilemma for investors who need high levels of income but can’t stomach a high level of risk. We have a solution. Actually, we have two.
The US credit cycle is entering its ninth year. That doesn’t mean it will end tomorrow. But it will end—and possibly sooner than markets think. Fortunately, there are ways to de-risk and maintain exposure to high-income assets.
Still casting about for a New Year’s resolution? If you’re an income-conscious investor, try this: expect that something unexpected will happen next year and act now to cushion your portfolio.
When the market starts buzzing about rising rates, high-yield bank loans’ popularity grows. Although the bank loan bandwagon may look tempting, we’ve found reasons why high-yield bonds shouldn’t be so easily dismissed.
A pending US interest-rate hike and worries about inflation may have persuaded investors to start avoiding bonds. We think that’s a mistake, especially when it comes to high yield, a sector that often thrives when rates rise.
Years from now, we may recall 2016 as the year when political risk became a constant presence hovering over the investment landscape. But fear not: there are ways for investors who rely on fickle global credit markets for income to turn the turbulence to their advantage.
For some investors, any mention of US mortgages takes them back to the dark days of 2008. But today’s mortgage bonds aren’t the devils some market participants make them out to be.