What have you found most notable about the markets in recent months?
We expected that as 2018 developed we may see an increase in market volatility. After years of easy money depressing risk-free rates and fueling risk asset prices, implementing the reversal has always felt like a step into the unknown, no matter how well the central bankers have tried to telegraph their actions. When spliced with some inflation uncertainty, the increased volatility in both government and corporate bond markets does not look too surprising.
Has your outlook shifted for the near term and how will it affect your portfolios?
We felt the need to be cautiously positioned entering 2018 and events so far have not changed this view. While global macro trends continue to feel reasonable and there is no immediate catalyst for a spike in general corporate default levels, we have seen an elongated economic cycle and expected returns for most asset classes look relatively low. When combined with the uncertainty that the planned withdrawal of quantitative easing creates, now does not feel the time to be stretching for higher risk and return within portfolios.
Given the current climate, where do you turn to for the best opportunities?
We have seen an increase in performance dispersion of specific securities and sectors in recent months, with markets quick to punish any bad news. This has created more opportunities to back our fundamental analysis, which for our portfolios feels like a better way to selectively add risk, rather than just broadly adding credit market beta in higher yielding names. We also continue to feel that floating rate credit assets such as secured loans and asset backed securities are a better place to be, given the uncertain path of interest rate moves and evolving central bank policy.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
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