Geofrey Marshall's blog

Income asset classes for income (and bonds for diversification)

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When we launched the Signature High Income Fund in 1996, the Signature team pounded the table with that simple premise. As interest rates fell starting in the early 1980s, yields in traditional parts of the bond market were, and continue to be, insufficient to generate an acceptable level of income. Nonetheless, government bond yields kept falling, generating capital gains in a defensive asset class, thereby perpetuating the illusion that bonds equal income.

Signature High Income Fund outlook and positioning

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There is much to read into the changing global political landscape from the surprise Trump election win. Eric Bushell's commentary/blog post from November 9 “And Now For Something Completely Different” articulated our thoughts on the long-term economic impact of the increasing populism, as demonstrated by the Trump victory.

Trick or Treat 2: Can companies be un-analyzable?

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Valeant Pharmaceuticals comes close with a business model based on serial acquisitions and a lack of clarity on true underlying sales trends. With sales growth seemingly dependent on drug price increases and unique distribution relationships, and adjusted EPS bolstered by draconian cost cutting, the company’s real margins and cash flows and the ability to service debt are uncertain. However, if the capital markets are accommodating (thank you closet indexers and passive ETFs), equity and debt can be raised cheaply enough for acquisitions to replace any lost revenue and cash flow.

The most significant development in credit markets...maybe

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At the CI Leadership Forum in October I spoke briefly about increasing interventionism in the capital markets. I believe we are still in the early innings of secular change in the regulation of the capital markets. I can make the argument this is a rejection of the laissez-faire economic policies associated with Reagan, Thatcher, and even Greenspan. This is, without a doubt, reaction to the pre-2008 excesses brought to light and the taxpayer capital put at risk to bailout poorly regulated and poorly managed banks and broker-dealers.

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