Gillian's Top Picks

There is only one thing in life worse than being talked about, and that is not being talked about. - Oscar Wilde

From the Federal Reserve's projected rate path to the diminished diversification benefits of bonds, fixed income in all forms has been a major topic of conversation on Asset TV. This week, I curated five videos that help us to understand the landscape across both public and private markets, with insights ranging from high-altitude observations to analysis at the sector level.

To kick us off, Joe McCurdy of Guggenheim Investments discusses the advantages of private debt versus other corners of fixed income:

“What's the typical return profile for private debt and how does it compare to other sectors of the fixed income market? It's a market we entered going back 20 years ago because the relative value versus what you could buy from the banks in the liquid market was compelling. And that relative value is defined in a couple of ways. You can look at the pricing, tend to get a pricing premium for the liquidity of the loan. You tend to get a better document, so better protections as a creditor, and you get more control and more access to information. So all those add up to what for us has been good relative value versus liquid markets.”

Rick Richert from Polen Capital explains why he considers the energy sector to be an obvious avoidance given its cyclicality and tie to the “unpredictable variable” of WTI.

Andy Sparks of MSCI Inc. dives into the increased correlation between stocks and bonds in recent years, and why the tide may be changing:

“Generally, yes, there continues to be less diversification than in prior years, so this diminished diversification's really been observed over the past two to three years. But there are also hints that things may be changing a little bit. So in our analysis of the past two to three years, we did observe that bond returns and equity returns were tending to move in the same direction in strong contrast to the prior 20 years worth of data… Now, the hint that things might be changing can be seen in the return pattern that we've seen for 2024. So as I mentioned earlier, for the investment grade sector we've experienced negative returns so far in 2024, but in contrast, equities have had a really, really strong year. And so there has been this decoupling of returns recently between bonds and equities.”

PIMCO 's David Braun underscores the outperformance of actively-managed bond funds versus their passive peers, especially in the categories of High Yield and Intermediate Core/Core-Plus.

And lastly, Allspring Global Investments ' Noah Wise outlines how to handle the turbulence of a highly-charged election year:

“Elections, if we've learned anything over the last number of cycles, it's that elections are incredibly hard to predict. What may be even more of a challenge is the market's reaction to those elections. And so, even if we knew how things were going to shake out, it wouldn't necessarily tell us how the markets would react to that. So, I think that really gets back to the benefit of that flexibility and really just proper risk management. Flexibility and risk management are two sides of the same coin. What that allows you to do is react to different types of market environments, not only to be opportunistic and take advantage of opportunities, but also to avoid some of the downside. And that's an important part of what we do as bond managers. We are always thinking about the downside. And I think always maintaining flexibility is an important component to proper risk management.”

How are you positioning within your fixed income allocation, and what are the risks and opportunities on your mind? As always, we love to hear from you.