A properly diversified credit portfolio should be exposed to both high yield corporate bonds and bank loans given their comparable value
NEW YORK, Aug.31, 2021 (GLOBE NEWSWIRE) – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today presented its outlook for third-party bank and high-yield loans. quarter 2021. Entitled âA Look at High Yield Credit Yields,â the report explains why now is the time for investors to conduct a relative valuation of corporate bonds and bank loans.
Among the highlights of the 16-page report:
Our credit spreads dashboard shows that discount margins for secondary loans are cheap relative to corporate bond spreads, which is due to benchmark rate differences as well as a risk of higher appeal on loans.
The buying risk considerably limits the upside potential in the short term. Investors can look to the primary market where the call protection is longest and find that loan yields are comparable to the yields on corporate bonds in the BB and B rated groups.
We forecast average annual credit loss rates of 110 basis points in high yield companies over the next three to five years, below a historical average of 261 basis points. For loans, we estimate an average annual credit loss rate of 86 basis points, which is lower than for businesses due to a higher recovery rate.
Our forward-looking estimates of the credit loss rate translate to positive loss-adjusted credit returns for most credit segments, but reveal little cushion for CCC-rated companies.
It is prudent to focus on the BB and B rated cohorts given record low returns and could help limit portfolio volatility if a correction materializes.
The real gross domestic product (GDP) of the United States in the second quarter registered an annualized growth of 6.6%. We expect sequential growth to slow from there until 2022: the impact of reopening businesses, which only happens once, will start to fade and the impact of fiscal stimulus will wane. will cool down, even with another spending program likely underway. This natural slowdown in activity as we go through a peak in growth could present challenges if growth slows more than expected.
Inflation is also likely to decline as much of the recent increase has come from categories suffering from temporary supply chain disruptions.
In this environment, different segments of high yield corporate bonds and bank loans offer unique opportunities, and a properly diversified credit portfolio should be exposed to both asset classes given their comparable value.
For more information, please visit http://www.uggenheiminvestments.com.
About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $ 255 billion1 in total assets through bond, equity and alternative strategies. We focus on the risk and return needs of insurance companies, private and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers and high net worth investors. Our more than 275 investment professionals conduct rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and under-tracked. This approach to investment management has enabled us to offer innovative strategies offering diversification opportunities and attractive long-term results.
1. Guggenheim Investments’ assets under management are at 30.30.2021 and include leverage of $ 16.3 billion. Guggenheim Investments represents the following affiliated investment management companies of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Fund Management (Europe) Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC and Guggenheim Partners India Management.
There are risks involved in investing, including the possible loss of capital. The potential impacts of the COVID-19 epidemic are increasingly uncertain, difficult to assess and impossible to predict, and can result in significant losses. Investments in fixed income instruments are subject to the possibility that interest rates will rise, causing their value to fall. High yield and unrated debt securities have a higher risk of default than investment grade bonds and may be less liquid, which can increase volatility.
One basis point is equal to 0.01%.
This material is distributed or presented for informational or educational purposes only and should not be taken as a recommendation of any particular security product, strategy or investment, nor as investment advice of any nature whatsoever. This document is not provided in a fiduciary capacity, may not be relied on for or in connection with making investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content hereof is not intended to be and should not be construed as legal or tax advice and / or legal advice. Always consult a financial, tax and / or legal professional regarding your specific situation.
This material contains the views of the author, but not necessarily those of Guggenheim Partners, LLC or its affiliates. The opinions contained in this document are subject to change without notice. The forward-looking statements, estimates and certain information contained in this document are based on proprietary and non-exclusive research and other sources. The information in this document has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Past performance does not represent future results. There is no representation or warranty as to the current accuracy, nor responsibility for decisions based on such information. No part of this material may be reproduced or referenced in any form without the express written permission of Guggenheim Partners, LLC.