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.
Credit/Fixed Income
Does US Corporate Tax Reform Endanger Private Debt Strategies?
No. If the interest expense deduction is eliminated, debt issuance may drop slightly, but the demand for senior and mezzanine debt will be little changed, and the risk/reward proposition is still attractive for investors.
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.
Decades of Data: 1900–2016
In over 35 different analyses and 100 charts, our annual report on the history of global markets provides context for the range of returns investors can expect from equities, bonds, and cash; reveals the importance of various components of equity returns; examines the evidence for equity mean reversion; and reviews the relationship between initial valuations and subsequent returns for equities and bonds. This year’s edition includes new sections on recent trends in the macro environment and business cycles, as well as several new exhibits in other sections. The appendix to this report shows year-by-year, cumulative, and average annual compound returns for as much as 117 years of market data for Australia, Japan, the UK, and the US.
Muni Bonds: Still Valuable in a Changing Environment
While worries about tax reform and pension underfunding dog municipal bonds today, their relative appeal and fair value absolute valuations keep them a solid option for high-bracket taxable investors.
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.
US Manager Universe Statistics: Fourth Quarter 2016
This chart book presents representative long-only and hedge fund manager performance for fourth quarter 2016. The median US Small-Cap Value manager posted the highest median return for fourth quarter 2016 (10.7%) and the year (24.2%). The median Global ex US Bonds manager posted the lowest median return for fourth quarter 2016 (-6.9%), while the Global Growth Equity ex US median return was lowest for the year (-1.1%).
Review of Market Performance: Calendar Year 2016
Investors navigating the marketplace in 2016 witnessed uneven advances in equity markets, record low yields in bond markets, and a recovery in commodity markets. This chart book reviews returns and other metrics for the calendar year.
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.
Eyes Wide Open for Municipal Bondholders as Pension Deficits Widen
Please see Sean McLaughlin, “Long Muni Bonds: Unloved, Orphaned, and Perhaps Safer Than You Think,” Cambridge Associates US Market Commentary, March 2011. Some muni bondholders in 2011 were terrified by a sky-is-falling prediction when Meredith Whitney, who made her name with a prescient call on bank shares during the lead up to the financial crisis,…