Market conditions may change in 2018, and that’s good for income-oriented investors. Yes, interest rates are rising and some assets look expensive. But there are still plenty of horses to ride in this race.
Emerging-market bonds delivered strong returns last year, and we think the sector has more potential. In 2018, though, investors will have to exercise caution.
As 2018 approaches, investors may want to take some time to reexamine their high-income strategies. We’ve got some advice: Be selective. Be diversified. And, perhaps most importantly, be patient.
The ECB has begun its big retreat from bond buying. It’s deftly managed to avert a taper tantrum in regional bond markets, which suggests they’ll stay an attractive place for income-seeking investors to drop anchor.
Tighter monetary policy in advanced economies. Stretched asset valuations. These are anxious times for income-oriented investors. But don’t worry—it’s still possible to generate income without taking on unnecessary risk.
High-yield bonds have had a good run. But with interest rates rising, has the market run out of road? Don’t bet on it. The sector usually motors ahead when rates rise. And when it does decline, it rebounds rapidly.
Bonds in the US high-yield market are as varied as the creatures in the sea. Invest carelessly, and you may get stung. But with careful analysis, investors can uncover gems at any stage of the credit cycle.
Should tighter monetary policy on both sides of the Atlantic worry bond investors? We don’t think so. Bonds have historically delivered positive returns when interest rates rise—particularly when they rise gradually.
Afraid you’ve missed the rally in emerging-market (EM) assets? Don’t be. Responsible policies and pragmatic politics have taken hold in many developing countries. That bodes well for growth and suggests the rally has room to run.