Monika Carlson: Today's environment is very challenging, and it has a lot of unknowns. It seems like the markets are reacting to different headlines on a daily basis. But investors’ need for income hasn't really changed. So, Fahd, when it comes to navigating the fixed-income markets and meeting that need for income, how do you think people should approach it?
Fahd Malik: We think markets have evolved, and so should investors. There's a need to focus on the efficient part of efficient income, which means that you should buy assets that produce income, but with good risk-adjusted returns. And in today's environment, you can get that efficient income by being defensive and having a higher-quality portfolio.
MC: And how do you do that today?
FM: You have to look for opportunities across the board. Opportunities could be in your backyard or they could be across the globe. We don't think high yield is the only game in town. You got to look for opportunities in emerging markets, in securitized assets, in European high yield and even in investment-grade credit.
MC: So, the idea is that you have more opportunities to generate efficient income through a global multi-sector lens because not every sector, not every region, has the same risk/return profile, and investors should be able to pull different levers in order to generate the income most efficiently. You not only get the benefits of diversification, but you can also find higher-yielding bonds without sacrificing the overall quality of your portfolio.
But having said all that, US high yield does sometimes outperform other regions and sectors. Wouldn't you agree with that?
FM: I think that's right. US high yield had a pretty good streak a few years ago. In fact, it was the best-performing asset class within fixed income. In the global multi-sector framework, if we think US high yield is going to do better, we want to own it. But the reality is, if you look at the last two or three years, [the] Global High Yield Index has actually outperformed [the] US High Yield Index in line with its long-term average, and we think that trend would continue.
MC: But are you concerned about credit spreads being so tight?
FM: Low spreads beget lower spreads. Spreads are towards historical lows, but there's nothing saying that they can't remain at these levels for multiple years. Fundamentals in high yield are actually quite robust, and perhaps that justifies the low level of spreads that we are seeing. Also, the policies of the incoming administration may be supportive of spreads.
MC: It seems like the stars have aligned to generate efficient income through a global multi-sector approach.