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The economy faces a slowdown with rising capital costs, yet resilient consumers and government support avert an imminent recession. Markets expect a “soft landing” economic cooling. Market sentiment pivoted favourably as the perception of inflation underwent a positive shift. Anticipated 2024 Fed rate cuts, a departure from the prior hawkish stance led to a decline […]
Q1 2024-Quarterly Investment Letter Read More »
Discover how hedge funds navigated through volatile markets, capitalizing on a November rebound after three challenging months. It contains a brief review of the 2023 investment year, explains why credit fixed income strategies were “everybody’s darling” this year and how the performance of the “Magnificent Seven” US equities impacted the markets. Finally, we venture an
Hedge Funds Review & Outlook 01/2024 Read More »
Current market yields continue providing an attractive entry point across sectors in context with their historic downside risk, calculated as standard deviation of negative monthly returns over the last 10 years. This includes particularly adverse events, such as March 2020 market selloff (COVID pandemic start) and broad market repricing during one of the steepest rate
Yields remain attractive in context with downside risk Read More »
With yields at almost 10% p.a., US HY offers investors a very solid buffer during adverse market development. This can be illustrated by a hypothetical multi-factor 12-month scenario, stressing the projected total return with a simultaneous risk-free rate curve steepening (-25bps on short and +100bps on long maturities), credit spreads widening (+200bps) and elevated realized
Elevated income buffers adverse market development Read More »
Historically, the income and total returns on European broadly syndicated loans have been comfortably exceeding realized default losses. This trend is evident from the chart with incomes, comprising of interest and fees, exceeding 4% and realized losses well below 1%. Total returns with mark-to-market component have also remained strong with the exception of 2022 market
Income on European loans in context with default losses Read More »
Historically, the income and total returns on European broadly syndicated loans have been comfortably exceeding realized default losses. This trend is evident from the chart with incomes, comprising of interest and fees, exceeding 4% and realized losses well below 1%. Total returns with mark-to-market component have also remained strong with the exception of 2022 market
Income on European loans in context with default losses Read More »
The yield breakevens, calculated as yield divided by duration, indicate by how much can yields rise, or credit spreads widen, before incurring capital loss equal to annual yield accrued on investors’ holding. A ratio of 1.0 implies that 1%point increase in yield or spread eliminates the entire year’s worth of yield accrual. As evidenced on
Record-high yield breakevens protecting return accruals Read More »
After a difficult 2022, first lien syndicated loans have been generating exceptional performance so far this year, returning 8.5% YTD as of August. Thanks to floating-rate coupons and consequently short duration, the senior first lien loans have benefited from rising benchmark rates. They have also outperformed fixed-rate HY bonds, which have exhibited higher return volatility,
First lien loans keep outperforming other high yield credit markets Read More »
The economic outlook is soft, but not disastrous. US economy demonstrates strong resilience, highlighted by robust labour market conditions, and documented by a solid 2.4% annualized real GDP growth rate in Q2. There are no signs for a severe US recession. During the quarter, the Federal Reserve raised the key interest rate range by 25
Q4 2023 – Quarterly Investment Letter Read More »
Following further slowdown in inflation expectations, real rates have surged in the last three months and are now exceeding 2%. The positive long- and short-term real rates benefit fixed income investors across entire spectrum of credit market sectors. Due to relatively tight investment grade credit spreads, real yields of 3.5% on IG corporates only slightly
Increase in US real rates supports credit investments Read More »
