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How to navigate fixed income markets in the New Year? Being selective in terms of regions, sectors, maturities and seniority will grow in importance. The old fixed income adage that ‘avoiding the losers is more important than picking the winners’ will come to the forefront again. At the same time attractive investment opportunities are still out there in this diverse, global, segmented bond market.
The years that followed the Great Recession were excellent investment years for the more risky fixed income categories like emerging debt and high yield bonds. From a valuation perspective these categories looked attractive and this was backed by a gradual improvement in the fundamentals and technicals at the time.
In recent years the environment has changed. It started back in 2013 when the taper tantrum highlighted the vulnerability of emerging markets to a change of course in US monetary policy. Ever since, deteriorating fundamentals and technical factors have led to disappointing returns for this segment. For credits markets the turning point can be traced back to the summer of 2014 when the US high yield market started to underperform, triggered by a troubled energy sector. Since then evidence has grown that the credit cycle is maturing and caution is warranted.
Our key investment views for 2016
In the current challenging environment, we advocate a flexible, benchmark unaware investment style with a global investment universe. These are our key investment views for 2016:
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