Where We See Opportunity in Risk Assets
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Text on screen: Tina Adatia, Fixed Income Strategist
Tina Adatia: Moving a little bit beyond rates and thinking about given this uncertainty risk across different asset classes, where do you see the most opportunity for the year ahead?
Text on screen: Marc Seidner, CIO Non-Traditional Strategies
Marc Seidner: I suppose diversification remains key, as I've said a couple of times, and we'd always drive that point home. Flexible strategies can also take advantage of a more uncertain yield and spread environment, we would drive that point home.
Text on screen: TITLE – Portfolio implications – Credit: LIST – Emphasis on active name selection; COVID-recovery sectors, housing, industrial/aerospace and select banks and financials all attractive; Private credit strategies offer attractive liquidity premiums.
We continue to find reasonable opportunity in both public and private credit markets here. I would emphasize, as I mentioned, the generic credit spreads don't look all that attractive, but certainly there are opportunities in public markets through sort of the COVID recovery theme that can be embedded in industries, airlines, lodging, retail, other real estate related sectors that should benefit quite strongly from the reopening of the economy and have lagged the recovery.
Text on screen: TITLE – Portfolio implications – Securitized: LIST – U.S. non-agency mortgage-backed securities still attractive; Global securitized including UK residential MBS offer good valuations vs. generic corporate credit.
And in terms of financial markets, speaking of real estate more broadly, and perhaps more specifically we find great value in non-agency mortgages today. We had found great value in the agency mortgage backed securities market, which offered very compelling valuation this time last year, less so today. And so we look more to add value through the non-agency mortgage sector than the agency mortgage sector.
Text on screen: TITLE – Portfolio implications – Emerging Markets: LIST – High quality EM FX (appropriately scaled) may offer value against USD; Select EM local positioning.
High quality emerging markets, if we do enter a period of strong global recovery with ample central bank liquidity, and perhaps kinder, gentler geopolitical environment, that should be an environment where emerging markets should be able to find their footing.
More broadly, as we think about asset allocation, we think that the convexity of equities look quite good in terms of a strong recovery, in terms of the early nature of a cyclical recovery. Similar with the COVID recovery theme in corporate credit, both public and private.
Text on screen: TITLE – Portfolio implications – Equities: LIST – Overweight to equities with prefense for cyclical over defensive stocks; favor equity markets in U.S. and Asia.
When we look at the equity markets, we would favor cyclicals over defensive, and that's been a theme that's worked and it should continue to work.
And then lastly, we've talked about fiscal policy and
Images on screen denote infrastructure: bridge, rail, highways
infrastructure and another fiscal package that will likely create a longer term spending profile, which we'll probably pay for, which means taxes are going up. And therefore, at least in the United States, municipal bonds look quite good to us. So there are sort of some specific ideas, Tina, in terms of where we're seeing value over the next 12 months.
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Please note that the following contains the opinions of the manager as of the date noted and may not have been updated to reflect real time market developments. All opinions are subject to change without notice.
The continued long term impact of COVID-19 on credit markets and global economic activity remains uncertain as events such as development of treatments, government actions, and other economic factors evolve. The views expressed are as of the date recorded, and may not reflect recent market developments.
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