Adam: Can you share a few areas of opportunity you’re seeing in the fixed income market?
Amar: In the near-term, I think some of the more “boring” agg-related types of strategies are attractive, given improved yields. I know some are concerned about curve inversion, but we’ve often seen in the past that as tightening takes effect and the economy slows into a deflationary or recessionary period, the curve inversion goes away and investors often regret not taking advantage of the fact that intermediate or longer yields were substantially higher — that’s what drives the convexity that’s so important in total return.
I also think macro fixed income strategies, which have been underutilized recently, are worth a close look. They can seek to take advantage of the volatility in interest rates and currencies, particularly during a period of asynchronous central bank policy tightening around the world. I would also consider long/short credit strategies, given their potential to capture premia within credit but with less beta, ideally, than a long credit allocation.
As we move closer to recessionary conditions, I would consider areas like CLO equity, which can potentially take advantage of wider spreads, and diversified credit strategies, which can rotate into the cheapest credit market sectors. Lastly, I think the situation in the US banking system, while not as bad as 2008 – 2009, will require a recapitalization process for select companies or across certain segments of the banking industry, and that could be an attractive area for patient investors who have capital to deploy.