Market Insights

Slowing issuance, combined with the high inflows into fixed income, lends for a significant tailwind where investors can take advantage of the compelling opportunities in active credit.

As we head into Q2, we gathered some of the key themes and opportunities we see in the current market environment.

Our CEO discusses the recent challenges in the private debt space and how they have changed the way investors evaluate liquidity and transparency within their portfolios.

The IFRS Sustainability Symposium 2024 provided valuable insights into the future landscape of sustainability-related financial disclosures and our own ESG integration approach.

The all-in yield backdrop in corporate fixed income remains unequivocally attractive, especially considering global central bankers are likely on our side going forward. With demand outweighing abundant supply, there is no shortage of opportunities in fixed income.

Our proprietary trading tool, "SANTA," helps optimize our investment process by facilitating portfolio structuring, identifying mispriced securities, and improving execution efficiency.

Our Credit Research Team recently conducted an important analysis on the Mining sector, which revealed challenging gaps in ESG metrics and standards for the industry. This paper takes a closer look at the culture of harassment in remote mining sites and analyzes the challenges and gaps regarding diversity targets and safety metrics in the industry from an ESG investing perspective.

As we head into 2024, we gathered some key themes and observations we believe will define the year ahead. Given the current economic outlook and valuation levels, we believe there is an opportunity for investors to de-risk portfolios by adding to active credit strategies. These strategies can act as an effective yet simple solution in a potentially choppy environment.

The final quarter of 2023 provided much-welcomed relief for fixed income investors, but there are a few things to look out for in 2024.

In this month’s newsletter, we take a step back and assess the market’s restored optimism that led to a sharp and broad-based rally in November. We discuss how the swift market moves could be an overshoot in sentiment and valuations, leading us to taper our positioning and proceed more cautiously. Nevertheless, we argue that there are still plenty of opportunities for active managers like ourselves to capitalize on the dispersion in credit valuations and dynamically allocate to what we view as the most promising risk-adjusted opportunities.

Although buying individual bonds may seem compelling in the current environment, understanding these under-the-surface risks is essential to choosing the right investment solution and ensuring investment portfolios can generate the best value, especially for long-term investors.

Despite disappointing recent performance for bonds, pension plans find themselves in an overfunded position for the first time in years. As many plan managers look to safeguard these gains through liability-driven investing, we believe fixed income - and active credit strategies in particular - can play a role in de-risking portfolios further.

In this new series, we summarize notes from the trading desk to provide a brief overview of the macroeconomic environment and examples of our positioning in our strategies. This past quarter, contradicting economic data sparked a tug-of-war between inflation and growth, and markets priced in the projected "higher-for-longer" environment as we navigate continued uncertainty.

The third quarter ushered in a broad-based selloff, as central bank projections of a higher-for-longer interest rate environment, fiscal deficit concerns, and unfavorable supply-demand dynamics reignited interest rate volatility. While this may make fixed income investors weary of what's to come, in a series of charts, we highlight why we believe high-quality credit is more attractive than it has been in a long time.

Central bank policies and their effect on economic activity and growth is continually creating dislocations in credit markets. Our research team highlights how we are opportunistically acquiring high-quality bonds in less understood areas of the financials sector and realizing profits through highly active tactical management.

In response to the unprecedented speed of rate hikes and tumbling bond valuations, many investors have turned to GICs for their attractive yields and capital preservation. However, with inflation moderating, we believe investors should consider looking beyond GICs and pivot back to bonds, particularly Active Credit, which can offer higher yields, capital preservation, and portfolio diversification.

Bond markets are extremely attractive from an all-in-yield perspective, and we genuinely believe the current opportunity set in fixed income provides investors with an excellent entry point. Nonetheless, the valuation dispersion across and within asset classes requires a tactical approach to identify and exploit the best risk-adjusted opportunities.

P&C firms face more complex investment decisions than most institutions due to regulatory capital guidelines, but now must re-evaluate their investment playbook in the context of today’s market volatility and weaker macroeconomic outlook. Based on the three P&C investment dimensions: return, risk, and capital charge, we believe P&C insurers can benefit from the relative opportunity in high-quality Active Credit, providing a better risk-reward profile.

In the 2023 Federal Budget released in late-March, a surprising tax measure was proposed, where Canadian insurers will be expected to pay the full tax rate for common and preferred share dividends, treating them as ordinary business income. We believe losing the tax advantage of these instruments gives insurance companies another good reason to rethink their preferred share allocations. We believe actively managed fixed income solutions can deliver better risk-adjusted returns for P&C firms, with a much lower capital requirement.

There is no denying that the income is back in fixed income. Investors may feel compelled to lock in attractive bond yields by overweighting portfolios to certain securities. However, we believe the still uncertain market backdrop calls for a more balanced approach when constructing a bond portfolio.