All posts in category: High Yield (4)

Time for the Beach

Monday, August 19th, 2024

What have we learned from 2024 so far

Lesson one, fixed income is not offering many clear signals. There is no sustained relative momentum anywhere along the US Treasury curve. Investment Grade and EM Bonds are not adding to returns or diversifying risk. High Yield continues to do both, which is lesson two. Three, we still like the Technology-related sectors in US equities, but not as much as previously and we are much more selective within them. Four, Japanese equities are uninvestible until we know who the new Prime Minster is and maybe not even then. Five, we are already defensive in our Eurozone equity models and becoming more so in our bond model, all of which is consistent with a rising threat of recession. Six, the UK is our preferred equity region, with its recommended weight approaching a 20-year high. There is a chance it may escape from 25 years of underperformance.

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FOMO can be rational

Friday, July 5th, 2024

“Probability of unacceptable losses in US equities less than 3%”

Sometimes it helps to look at the world from another perspective. Most institutional investment regard risk as a cost, something which must be used efficiently. But there is another approach, which views volatility as something which enables high returns, which should be accepted, provided that the asset can be sold when losses are worse than those which are predicted from the distribution of returns. This view is typically associated with retail investors and the benchmark asset for comparison purposes is normally cash. If we use this approach, based on data for the last four quarters, we find that the probability of incurring unacceptable losses in US Equities is less than 3%. Sure, it’s a short data set, but with numbers like this, FOMO can be rational.

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Focus on Fixed Income

Friday, November 17th, 2023

High Yield has the best yield to volatility ratio

Our top-down models are now overweight fixed income, so maybe it is time to work out exactly which categories we want to own and why. We have always liked the yield to volatility ratio, chiefly because it is a good lead indicator of the Sharpe ratio, which an asset will deliver. It contains more information than a study of spreads relative to benchmark, and avoids the underlying assumption that these are somehow mean-reverting. High Yield scores very well on this metric and has done for most of the last two years, which is why we have it as the only category in our fixed income model, where we are overweight relative to benchmark.

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How to Manage Falling Treasuries

Wednesday, September 14th, 2016

Buy Credits where volatility is still falling

We think that the best way dealing with falling Treasuries is to stay in fixed income and to seek out situations in the credit markets, which are priced for high levels of risk, and where volatility is still falling. The problem with reducing duration or buying inflation-linked bonds is that the Fed and other central banks can force you to unwind it if they want to.

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