The end of cheap money? investigates fixed income investing as monetary policy tightens and looks into ways to optimise risk/return potential in credit markets. It also details which strategies, in particular high yield strategies, are best adapted to benefit from credit opportunities and manage risk.
Patrick Zeenni, deputy head of high yield & credit arbitrage Candriam said: “With the end of cheap money approaching, investors now face two major concerns: the impact of rising interest rates on investment portfolios and how to find attractively priced yield. Investors must therefore change their fixed income investment decision-making process to address these new challenges. We firmly believe portfolio performance will now come from alpha generation.”
According to the report, the key for many investors is to focus on alternative credit investment opportunities, such as high yield corporate credits which have a low correlation to interest rate movements and offer more attractive yields, along with a flexible and dynamic management to mitigate key risks. Spreads have normalised and dispersion among securities is rising as normal macro and market environments return.
“With current assets representing over €1300bn globally, of which €280bn in Europe, the corporate high yield segment still only represents approximately 25% of the US market,” added Zeenni.
“But the depth of the market is significantly expanding by geography and sector and we are seeing a significant increase in issuances in emerging markets and non-core European countries. Confidence around the high yield asset class is rising as the need for refinancing remains high. In addition, its ability to inject diversification in a portfolio is also crucial in today’s environment.”