Our investment professionals share and challenge each other’s views, creating a diverse marketplace of ideas for the Wellington Blog.
Factor investing – tilting a portfolio toward securities that have certain attributes (e.g., attractive value, quality, momentum, etc.) – has become widely accepted and practiced in the world of equities. Within fixed income, it is in a more nascent stage.
However, we believe that applying a factor-based investing framework can lead to valuable insights into what is driving performance in different sectors of the bond market. Even more important, it may allow investors to better position their portfolios to take advantage of…
The US Federal Reserve’s (Fed’s) recent adjustments to its monetary policy framework are impactful for short-term investor returns, affirming our expectation that short-end interest rates will likely remain at or near zero for at least the foreseeable future. This brings short investors back to the dilemma many knew all too well post-2008: With most deposits and money market funds earning next to nothing in yield, how should I invest my liquid and reserve assets?
For clients’ second-tier cash bucket (reserves or excess liquidity), here are three suggestions to modestly increase income without adding significant risk.
Money market funds are governed by strict rules that limit the investable universe. There has also been a surge of inflows into money markets (Figure 1), further suppressing potential income from assets meeting the money market criteria. Thus, we believe expanding one’s opportunity set beyond the traditional money market rules — while still remaining on the short end — may…
Baseball legend Yogi Berra famously remarked that “it’s tough to make predictions, especially about the future.” Political elections are no exception, of course. But as difficult as forecasting an election can be, predicting market reactions is arguably even more challenging. That being said, with the 2020 US elections only a few weeks away, now seems an opportune time to think through the various potential outcomes and their implications for fixed income and currency markets.
While most market participants are focused on the presidential election, which party controls the Senate is of equal importance in the event of a Biden victory; it matters less under a Trump presidency given that Democrats control the House of Representatives, with little chance of a flip there. Thus, the three possible outcomes to consider are…
The US hospital sector saw a substantial direct impact from COVID-19, primarily via the sharp decline in elective medical procedures, but also received significant aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. So what now?
Ultimately, the performance of hospitals — and the municipal bonds (munis) they issue — will depend on the severity and duration of the current health crisis. We expect diminished revenues for the remainder of 2020, although many hospitals are cutting costs and deferring capital spending to help offset this. We believe hospitals with strong balance streets and fundamentally viable operations are best positioned to weather the crisis; for weaker hospitals, ratings downgrades are likely.
Coming into the pandemic, financial performance across the US hospital sector was largely stable. Most health care providers were managing through various sector headwinds, thanks to…
The term “fallen angels” has always carried a somewhat pejorative connotation among fixed income investors. In some instances, that may well be justified, but not always. Indeed, particularly in today’s environment, I believe discerning investors may be able to uncover attractive value in the often-scorned universe of fallen angels.
European, global, and US high-yield indices declined around 20% from the start of the year through the peak in spreads on March 23. However, extraordinary global monetary and fiscal stimulus measures in response to the COVID-19 crisis have since helped high-yield markets recoup a sizeable portion of those losses. Members of Wellington’s High Yield Strategy Group met recently to discuss their market outlook, including perceived risks and opportunities, in the wake of this extreme volatility.
While the worst of the economic shock is likely behind us, the question now surrounds the trajectory and timing of a recovery. Our base case is for a two-stage recovery that begins with a strong rebound from pent-up consumer demand as lockdown measures are eased, followed by a drawn-out recession.
Purchasing managers’ indices (PMIs) — economic indicators derived from surveys of private companies — remain depressed across nearly all geographies. However, we believe…
We firmly believe investors should consider floating-rate loans (“floating rate”) as a strategic portfolio allocation — rather than merely a tactical allocation — for three key reasons:
Modern Portfolio Theory tells us that combining low- or negatively correlated assets in a portfolio may reduce overall portfolio risk and improve long-term returns. Historically, floating rate has exhibited low correlations to equities and fixed income credit and has been negatively correlated with…
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