Tim Kearney, Multi-Asset Market Strategist at Voya Investment Management, told Bloomberg Markets: Americas that trade and the Fed are driving his outlook right now. With regard to asset classes, he said: “We think that there’s going to be continuation of the trade discussions, and that will keep equity markets and risk assets with a little bit of a lift following into the Fed a month later.”
Matt Toms, Chief Investment Officer, Fixed Income at Voya, spoke with Institutional Investor Magazine “about what fixed income investors should be watchful of as part two of 2019 gets underway.”
Bloomberg reports “AbbVie Inc.’s $63 billion deal for Allergan Plc will take the company’s debt burden to a level that can rival some junk-rated companies.” Voya Investment Management’s Head of Investment-Grade Credit Travis King said, “Debt is cheap so it makes sense from their perspective, and rating agencies are giving them the OK to do that.”
Bloomberg reported “as the Federal Reserve moves closer to expanding the money supply, corporate bond investors are snatching up notes and taking more risk – but not too much more.” Bloomberg said “prices on the lowest-rated investment-grade bonds are jumping, as are the highest-rated junk bonds. While high-yield investors are still favoring relatively safer securities, those that invest in high-grade are reaching for yield in the riskiest part of that market.” Travis King, head of Investment-Grade Credit at Voya Investment Management, said: “It’s been all buyers. Investors are going down the quality spectrum. That means the lower BBBs, the crossovers – stuff that trades wide.” King also “says he thinks the rally could continue, especially as more buyers from outside the U.S. step in.”
Voya Investment Management Managing Director and Head of Insurance Solutions John Simone was quoted throughout an A.M. Best article looking at how large asset managers and insurers are planning for a riskier future as the warning signs of an impending recession mount. As markets turn, Simone said, “The greatest risk to the industry is a ratings migration downward, creating the need for more risk-based capital backing investments.” Looking forward, Simone sees private assets as providing better returns than publics, saying, “We favor private assets over public because not only are we getting better yield, but we get better structure. And better structure is really important with where we are in the credit cycle. We like private placements, investment-grade quality private commercial mortgage loans extending into below-investment-grade commercial mortgage loans and lower quality private debt, where we see opportunity. We really want to be able to pounce there when the market turns.”
Pensions & Investments reports institutional asset owners such as insurance companies “continue to seek new sources of alpha in alternative investments.” As yields on core fixed income assets have fallen in recent years as interest rates decline, insurers have turned to real estate, hedge funds, and other alternative classes, though those teams are often outside the company’s traditional core of expertise. Voya Investment Management Head of Insurance Solutions John Simone said money managers are increasingly building teams to concentrate on the insurance market, saying, “The successful ones will build out a comprehensive solutions team focused on delivering in addition to alpha solutions globally (such as) insurance asset management advisory capabilities, specialized analytics/optimizations, dedicated relationship management and specialized reporting.” However, Simone cautioned that managers must realize the same solutions they are used to in the retirement plan sector will likely not apply to insurers, saying, “the barriers to entry are often higher than many think.”
Voya Investment Management Head of Asset Allocation Barbara Reinhard was on CNBC discussing the recently-released Federal Reserve Open Market Committee meeting minutes. According to Reinhard, there is little threat of inflation despite a patient Fed. She said, “[I]t’s an accomodative turn from last year, and there’s a high hurdle for the Fed to cut interest rates at this point. That’s why the market has been pricing in a Fed cut at this point – about 40 basis points ... in our view, the signs of inflation just don’t seem to be there.” Reinhard cited the NFIB survey indicating inflation is not a major concern for small businesses, while pointing out that “the Fed has said they would like to see inflation run a little bit above their target to try to hit that target in the long term.”
Voya Financial’s Dave Goodson and Mohamed Basma write in Financial Advisor Magazine that collateralized loan obligations (CLOs) have been “cast as the villain most likely to bring the global economic system to its knees” in the next economic downturn, though Goodson and Basma argue that a better gauge of risk requires “a deep understanding of the different instruments used to gain corporate credit exposure.”
International Financing Review reports “single-asset and single-borrower CMBS deals are accounting for a high proportion of activity in the market, as conduit refinancing slows and lenders face competition for assets.” Investors note that they often prefer single asset over multi-borrower deals due to their simplicity, making them easier to underwrite. Voya Investment Management Head of Securitized Credit Dave Goodson said, “Single-asset deals are so much easier to underwrite – it’s one borrower, or one property, and it’s so much easier to get your head around that. Relative to conduit, you’re usually willing to accept less spread, because you can understand the risk more easily. It’s often something closer to a trophy asset, or otherwise more vanilla, so it’s become a more efficient funding model and it’s often easier for the street to sell deals.”
Bloomberg reports hedge funds and asset managers “are resurrecting collateralized debt obligations (CDOs) that bundle risky bonds and loans into new, higher-rated securities.” Even though the assets “blew up during the financial crisis,” proponents argue that improved quality of underlying debt means CDOs should be well placed to weather the next economic downturn and drive profits in a down market. Not all investors are convinced CDOs will hold up during the next recession, however, with Voya Investment Management Head of Securitized Products David Goodson saying, “We’re not advocating adding them, generally speaking, in our general accounts. We’ve seen some things that we think are pushing the envelope.”