As passive penetration into fixed income picks up, active managers are increasingly making the case for how active management can benefit fixed income.
A lot has changed since we positioned our various portfolios for the reflation trade back in the summer and fall of 2016. The initial euphoria around the new administration in the US has faded, continental Europe has rejected the populism that rocked the Anglo-Saxon world, and emerging market assets have seen a noticeable recovery.
Highlights from the Global Fixed Income Webcast
On February 16, 2017, we hosted a webcast on the fixed income outlook, positioning and performance.
Here are the highlights:
Looking at the global markets from a cyclical lens
A look back on 2016
Last year was a volatile environment for both safe haven and risk assets. Deflation and risk-off dominated the first half damaging credit markets that led to new lower lows in global sovereign bond yields. Since mid-summer, indicators of U.S. and global growth and inflation have been in an uptrend lifting bond yields. This note lays out our fixed income outlook1.
The environment – We focus on cyclical developments in the economy
Background
Background
Investors with long dated liabilities such as defined benefit pension plans and insurance companies are familiar with the use of long government bonds to hedge their interest rate exposure. The most successful of these organizations, have followed a disciplined approach to progressively add to their liability-focused, fixed-income programs regardless of the level of interest rates.
The first quarter of 2016 has been marked by additional monetary easing by major central banks venturing further into negative interest rates and direct credit easing in response to a weakening global economy. It is a symptom of the ongoing global debt default that to support the current market valuations (and avoid a crisis of confidence), interest rates have to be lowered. This was also the case in Q1 2015.
Fixed income risk management – the most important lesson
As we wind down our active positions in 2015, it is important to reflect upon our performance, revisit our principles, plan for 2016 and position the portfolios accordingly for the coming year.
