Worries over the health of US credit markets have risen in recent months, with numerous reports highlighting the growing vulnerability of indebted companies (and thus investors) to rising rates and a potential turn in the economic cycle. This paper provides our updated thoughts across US credit markets, as well as some tactical tilts investors could employ to help navigate a few of these headwinds.
Yes, but investors should be selective in allocating to credit markets at this point in the cycle, and understand that the overvaluation of many credit assets could make attractive returns hard to come by.
Retail is changing and some companies face challenges, but this theme has probably been overhyped, and implications for investors are limited.
In our 2018 outlook, we review the prospects for several asset classes—developed and emerging markets equities, credit, real assets, sovereign bonds, and currencies—and share the advice of our chief investment strategist.
Another outbreak of Eurozone distress is not our base case, but more risk-averse investors should understand their options.
Commercial real estate lending funds represent an opportunity for investors worried about real estate valuations to move up the capital stack yet still earn an attractive return.
At this stage of the US real estate cycle, commercial real estate loans may hold some appeal for investors that are concerned about overvalued real estate equity, as well as those concerned about low spreads and excess competition in other parts of the credit market.
We remain neutral on Japanese stocks despite attractive valuations and near-term earnings potential in view of daunting intermediate-term macro challenges.
We remain negative on high-yield bonds and only slightly more positive on leveraged loans, preferring other credit assets and strategies to help diversify portfolios.
We don’t think so. Investors with diversified portfolios already have some cushion if equities sell off, and trying to time the market by buying derivatives or substantially reducing equity exposure is rife with behavioral risks.