Eurozone Distress: In Case of Emergency Break Glass
Another outbreak of Eurozone distress is not our base case, but more risk-averse investors should understand their options.
Authored by: Wade O'Brien
Do Real Estate Lending Funds Deserve a Place in Investor Portfolios?
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.
Building a Case for Commercial Real Estate Debt
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.
Japanese Equities: Short-Term Promise Jeopardized by Longer-Term Risks
We remain neutral on Japanese stocks despite attractive valuations and near-term earnings potential in view of daunting intermediate-term macro challenges.
High-Yield Bonds: Still Not Compelling
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.
Should Investors Buy Downside Protection to Hedge Against an Equity Market Drop?
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.
A Supportive Argument for Structured Credit
Asset-backed securities enjoy favorable fundamentals and are positioned to outperform high-yield bonds and leveraged loans in 2017, but investors should be selective—valuations are stretched in parts of the market and some sectors face regulatory headwinds.
Are “Reflation Trades” Reversing or Just Pausing?
Some of the reflation trades that received a boost from the US election look to be merely taking a breather as investors square positions; however, the fundamental support for others—particularly the outperformance of US small-cap equities—is challenged.
Outlook 2017: A Break in the Clouds
Change is in the air and the prospect for a bit of sunshine to break through the overhang of slow growth and lower-for-longer yields is palpable. Of course, the sun doesn’t shine forever, and overall our views are little changed. The things we have been worried about for some time—high valuations for certain risk assets, record-low interest rates, slow economic growth—have not gone away. The surest call to make for 2017 is that higher growth expectations will be paired with the distinct possibility of negative outcomes, putting a premium on diversification and liquidity management.
The Consequences of Negative Interest Rates
Low rates have distorted markets and generated unintended problems for investors and lenders. Central bankers are increasingly aware of these consequences and are slowly moving to press the pause button. It will take even more courage for them to begin to reverse the unprecedented interventions in bond and other markets.