Income Opportunities Require Selectivity
US Investment-Grade Credit
US investment-grade credit remains underweight in our portfolios. Although issuer quality remains attractive, current spreads provide limited compensation for taking on additional credit and duration risk.
Inflation continues to moderate, but the US Federal Reserve remains cautious, keeping interest rates unchanged and maintaining a higher-for-longer policy stance.
What this means for investors: We continue to favour shorter duration and floating-rate opportunities, where income can be earned without assuming excessive interest-rate risk.
US High-Yield Credit
We remain cautious on high-yield credit. Corporate earnings have generally been resilient and market conditions remain supportive, but tight credit spreads leave little margin for error if economic growth weakens or market conditions deteriorate.
What this means for investors: Exposure remains focused on higher-quality issuers rather than lower-quality companies, where investors are not adequately compensated for the additional risk.
Government Bonds: Diversification Still Matters
US government bonds remain neutral allocation within portfolios. Current yields continue to offer attractive income and diversification benefits, particularly during periods of market uncertainty.
However, long-dated government bonds remain vulnerable to inflation surprises, elevated government borrowing requirements and changing interest-rate expectations. International government bonds remain underweight as opportunities outside the US continue to offer less attractive risk-adjusted returns.
What this means for investors: Government bonds remain important portfolio diversifiers, but we are selective about duration and continue to favour areas of the yield curve where risk and reward are better balanced.
Emerging-Market Debt: Balancing Opportunity and Risk
Emerging-market debt remains a neutral holding. Falling inflation in developed markets and attractive yields continue to support the asset class, but opportunities vary substantially by country.
Currency volatility, geopolitical risk and differing economic conditions continue to create both opportunities and challenges for investors.
What this means for investors: Exposure remains diversified and benchmark-aligned, with careful attention to country-specific and currency-related risks.
