Credit markets are addicted to short-term performance

Credit markets are addicted to short-term performance

06-10-2017 | 四半期アウトルック

Robeco’s Credit team is growing increasingly uncomfortable. Valuations are at all-time tights. Central bank buying, one of the main supporting factors over the past decade, is about to come to an end. However, Sander Bus and Victor Verberk, co-heads of the Credit team, see plenty of opportunities for active issuer selection.

  • Sander  Bus
    Sander
    Bus
    CFA, Managing Director, Co-head Credit team, Portfolio Manager and Head High Yield
  • Victor  Verberk
    Victor
    Verberk
    Deputy Head of Investments

Speed read

  • The global economy is enjoying solid growth; the credit cycle is maturing
  • Credit spreads are close to all-time tights
  • A decade of unprecedented central bank balance sheet expansion is about to end

The US is in the eighth year of economic expansion and markets are enjoying one of the longest uninterrupted bull markets. Inflation remains largely subdued. “Still, we are growing increasingly uncomfortable,” says Sander Bus. “Too much money has been chasing too few assets as central banks have been crowding out investors. Volatility and credit spreads, both measures of risk, have declined to historic lows. This is an indication of risk fatigue: investors no longer dare to take risk scenarios into account as that has been hurting them. The central bank has forced people to follow the flow and close their eyes for risk.”

“It is important to keep the longer perspective into account,” adds Victor Verberk. “We are getting close to the end of central bank buying, the Fed is in a hiking cycle and the credit cycle is maturing. Corporate leverage in the US is high. This makes markets vulnerable.”

クレジットに関する最新の「インサイト」を読む
クレジットに関する最新の「インサイト」を読む
配信登録

Risks are not being priced in

“We do not know how much more time there is for this cycle,” Bus continues. “It does not make sense to spend too much time trying to predict a recession, it is enough to conclude that risks are not being priced in at all. This is no longer the time to stick your neck out and take risk. With central banks backtracking, investors are less likely to buy on dips. We are not moving aggressively underweight, but we position our portfolios cautiously in terms of beta. We do see plenty of opportunities for active issuer selection. It will probably pay to focus on conservative credits, which will outperform once spreads start to widen.”

“Many investors feel the need to be fully invested,” says Verberk. “Negative yields on cash are a punishment for being conservative, pushing people into uncomfortably long positions. We advocate not taking too much beta risk in this environment and avoid being addicted to short-term performance.”

Credit has rarely been richer

Spread products have performed strongly this year. Most credit categories are close to the all-time tights on a risk-adjusted basis. “People often justify tight valuations saying that they do not see a catalyst for things to change,” says Bus. “Well, let’s remember that a catalyst for change is mostly only seen with hindsight. The forest is dry, you do not need to know which match in the matchbox will set it on fire. It is enough to conclude that markets are not discounting any negative surprise and that the cycle is in its mature phase. Reason enough to be cautious.”

“Corporate hybrids and financials still offer value in investment grade. For high yield and emerging markets, we stay as high quality as possible without compromising too much on the beta.”

Consistently at the forefront of credit management
Consistently at the forefront of credit management
Credit investing

Technicals will turn for the worse

Verberk sees technicals worsening. “They will no longer provide support with the end of central bank balance sheet expansion nearing. As for supply & demand, Asian investors have been the largest contributors of inflow into the US credit market. This is now slowing down and with the Fed likely to hike rates further, the flow will probably slow further if not reverse. Higher US short-term rates are increasing hedging costs. In addition, a steeper yield curve in Europe and Asia than in the US means that investors can now pick up more attractive yields in non-US assets.”

High yield has been facing shrinking supply. The main reason, says Bus, is competition from the loan market. “Many companies refinance their public high yield bonds with private loans. Discipline in the loan market has disappeared and companies have access to almost unlimited funding without having to give covenant protection or early redemption fees.”

Positioning: betas close to neutral

Bus and Verberk run almost all portfolios with a beta close to one. “For high yield and emerging markets, this means that it might end up just under one, since we want to avoid the cyclical companies,” Bus explains. “For investment grade, it is easier to reach a neutral beta as we can still find attractive yield in financials.” “For a long time, we preferred European to US credit. For high yield this is still the case, but in investment grade valuations have tightened due to ECB buying and are vulnerable to a reduction in purchases. Here we have a more neutral regional allocation. In European portfolios, we skew the portfolio to bonds that are non-eligible for ECB buying.”

“We prefer companies in more stable sectors that are less exposed to an eventual turn of the cycle,” Verberk concludes. “We are in general underweight commodities and like banks. In our issuer research, we stress-test the financial models for the companies we invest in for higher interest rates and recession scenarios.“

重要事項

当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。

ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。

運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。

当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。

商号等: ロベコ・ジャパン株式会社  金融商品取引業者 関東財務局長(金商)第2780号

加入協会: 一般社団法人 日本投資顧問業協会