Trader profile: Pick the best out of the basket
What is the asset class and geography you are focused on?
As a global, multi-sector manager we are predominantly focused on fixed-income markets across the globe. We seek opportunities in both high- and-lower quality credit. We favour both US and non-US corporate and sovereign (including emerging markets) bonds, lower-rated credits and convertible bonds.
What is the outlook for the month ahead?
It is likely that there will be a continuation of trends currently in place. We expect the demand for higher-yielding securities across global markets to stay steady. This would include US high-yield and emerging-market bonds, which are improving after the currency and technical pressures at the turn of the year. In addition, we expect the American economy to grow as it emerges from a harsh winter weather, supported by stronger automotive and housing sales. We also expect Europe to continue to rise, albeit at a slower pace.
What are the main risks, either upside or downside, to the outlook?
In the short term, the predominant risks are geopolitically driven – for example, the tensions between Russia and Ukraine, or China and Japan. Any escalation of such conflicts is likely to cause volatility spikes and potential flows to safe havens, away from risk assets. These fluctuations may also take the form of a buying opportunity. There is also a challenge in the late second quarter, as we head into summer, when it tends to be tougher to generate strong returns.
What is the best investment at the moment?
We continue to search for value across broad global markets, particularly in areas with high-carry or yield advantage. High-yield bonds in the US and globally, as well as in select areas of emerging markets, are promising. Credit and high yield should generally be supported by demand for risk assets and strong corporate credit profiles. We are careful not to chase yield and focus on individual situations for improvement in credit profile and attractive total returns.
In emerging market bonds, more attractive valuations have returned after the volatility in January, although some of these markets have turned up lately as well. In the case of either segment, our decisions are based on making the right picks rather than buying the basket. In terms of emerging market debt, Mexico remains a strong pick because of improved relative competitiveness, ties to an improving US economy, and energy and telecoms reforms, which should be beneficial for economic growth. Stock and bond picking is also becoming increasingly important.
What was the best investment you were ever involved in?
Our decision, to stay the course on select holdings of corporate credit debt emerging from the 2008 crises proved to be very beneficial. This also set the stage for more opportunistic investments later into peripheral Europe, which also proved to be positive. Seizing opportunities across global markets based upon strong fundamental research is key to strong long-term performance.
What was the worst?
The worst outcomes for us generally involve individual security situations in which outcomes are not in line with what research had led us to expect. We learn from such experiences and apply the lessons to future decisions. Diversification addresses these types of negative selection issues.
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Published: May 18, 2014 04:00 AM