Elevated volatility is here to stay, and that means many risk assets may become oversold, providing opportunities for investors to profit from mispriced risks.
June’s decline in funded ratios reinforced the need for pension plan sponsors to de-risk portfolios through higher fixed income allocations.
In Q2 2022, US CLO tranches were not immune from the macro volatility and broader market sell-off.
Highlights from the week of September 16 – September 22, 2022.
We expect inflation to ease despite a surprisingly high CPI reading for August, allowing the Federal Reserve to temper its aggressive pace of rate increases.
Despite recent volatility in the senior loan market, owning higher-rated cohorts can help commercial banks navigate rising interest rates while remaining mindful of credit risk.
Commercial mortgage loans (CMLs) have a track record of strong, differentiated returns that have made them an effective way to diversify institutional fixed income portfolios. Given the historical frictions in CML transactions, many investors assume the asset class is illiquid. However, technologies and platforms to connect buyers and sellers have improved significantly since the 2008 financial crisis. The resulting liquidity has made it easier for institutional investors to access CMLs in a broader range of investment vehicles, including pooled accounts such as collective investment trusts.
Elevated volatility is here to stay, and that means many risk assets may become oversold, providing opportunities for investors to profit from mispriced risks.
June’s decline in funded ratios reinforced the need for pension plan sponsors to de-risk portfolios through higher fixed income allocations. We see a lot to like in intermediate corporates, high-quality private placements and securitized credit.
In Q2 2022, US CLO tranches were not immune from the macro volatility and broader market sell-off. Given the high correlation to loan market dynamics, especially at the lower Mezz levels, CLO tranches delivered negative returns* across the board at at -1.42%, - 3.05%, -3.97%, -5.85%, -6.94%, -8.6% for AAA, AA, A, BBB, BB and B rating cohorts, respectively.
These are the six major themes influencing positioning across our fixed income portfolios for the second half of 2022.
Should higher risk-free rates and wider risk premia change the investment approach of balance sheet investors? No…and yes.
Now that yields have reset higher, bonds are positioned to protect portfolios while delivering higher income.