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Mohit: The reasons we are excited about the prospect for total return is the return potential.
Text on screen: Mohit Mittal, CIO Core Strategies
The move lower in yields has certainly been supportive for absolute returns. But
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if you take a step back and look at over a three year horizon, yields today are very similar
Text on screen: TITLE – Factors driving return in 2026:BULLET – High starting yields
to what they were three years ago. So in many ways investors have the ability to still capture those high yields for an extended period of time.
At the same time, there's a meaningful amount of alpha potential in these fixed income markets.
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Now with the yield curves getting upward sloping, not just in the US but also elsewhere, that will be a source of total return above and beyond the initial yields. we can actively pivot between different countries.
2022 was different where every country experienced high inflation, so the central banks had to hike rates in more unison.
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Whereas on the way down, we will see more divergence in these global rates because of different growth and inflation trajectories.
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Currencies will continue to remain an important theme in this kind of volatility. And then finally, when we look at the lower quality segments of the credit markets, we are seeing high degree of complacency.
FULL PAGE GRAPHIC: TITLE – Factors driving return in 2026: BULLET – High starting yields, Curve positioning, Global divergence, Currencies, Credit quality
We've been running light exposure in high yield. So maintaining a high quality bias that will have the ability to go on the offense when opportunities open up in 2026.
There are lots of different, investment themes that will be part of the landscape in 2026.
Images on screen: US Capitol building and Internal Revenue Service building
One possibility is that the one big beautiful bill will lead to higher tax refund in the beginning of the year.
That should be a supportive for a little bit of consumption in Q1. Also should lead to somewhat higher inflation. Contrast that to what is happening in the rest of the world.
So more recently as US rates have outperformed and recognizing the possibility of a little bit of a cyclical uptick because of one big beautiful bill, we have shifted our duration position from the US into other parts of the world
Images on screen: Australia, UK and Japan
like Australia, like UK and even Japan.
Another source of volatility will come from AI related CapEx. We have been positioned well by running larger underweight in that space, yet we can structure transactions
Images on screen: Data centers
for certain situations where we can provide data center backed financing at attractive terms. So where we do see opportunities next year, we will certainly be open-minded and look at those opportunities while recognizing that in the near term, there's likely gonna be a significant amount of CapEx in that space.
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Starting yields look very attractive. versus equities where the return prospect is low because of high valuations and inverse correlation versus risk assets. It's a very exciting time for total return for 2026 and beyond.
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