Resource Search

The recent recession has certainly had a major impact on the financial condition of most municipalities. While we believe this may lead to an increase in defaults over the next few years, we do not anticipate widespread defaults or major losses at the bondholder level. Any defaults that do occur will likely be well telegraphed and identifiable through fundamental credit research.

Index-based global portfolios may offer a more efficient way to capture exposure to developed and emerging markets than having separate portfolios for each of the two. By consolidating these two market segments into a single integrated portfolio, investors benefit from lower portfolio turnover and reduced operating costs.

Fears of supply disruptions, regime change and further declines in the U.S. dollar are helping to drive oil prices higher. Yet, there seems to be sufficient capacity to offset supply shortfalls. Looking forward, fossil fuels and renewable alternatives both need to be developed to help secure our energy independence.

Sustainability has become a hallmark of market leaders. While sustainability is hard to measure, it has clearly become a prime concern of corporate management and we believe that it has reached a point where no prudent investor can ignore it.

Forecasts for the demise of the bond market have popped up repeatedly during the past two years only to be deflated by yet another bond market rally. Arguably, it is different this time. Rising rates seem close at hand, and this paper provides detail on that view. At the same time, the paper cautions against overestimating the downside risk in bonds.

Thanks to dedicated financial infrastructure and full research coverage, local currency debt is now a plausible and enticing asset class. Fundamentals continue to improve even after being tested by the 2008-2009 financial crisis, while supporting technical factors such as increased liquidity and a broader investor base also have increased its attractiveness.

The global financial crisis has debunked several myths about liquidity, including that long-term investors do not need short-term liquidity and that short-term investors are a reliable source of short-term liquidity. Instead, the most important source of liquidity is unleveraged contrarian investors who are willing to take the other side of an overcrowded trade.

The emerging market corporate bond market has become appropriate for a wider range of investors due to its size, liquidity, and dedicated research platforms. This paper highlights 10 key characteristics of this market segment as well as the fundamental risks and market risks for fixed-income investors.

If inflation is going to rise globally, it will most likely surface first in emerging market countries. But this also reflects why emerging markets are so attractive in the first place – their growth outlook is more robust and output gaps (where they exist) are closing much more rapidly than in the developed world.

We recommend a baseline allocation in our asset allocations in terms of stocks versus bonds and cash, but we also recommend the following tactical allocations: leveraged loans within the bond allocation, dividend-focused stocks within the U.S. large-cap stock allocation, and an allocation of 55% value and 45% growth within U.S. large-cap equities.