Portfolio Positioning: First Quarter 2016
Over the last several years, the fixed income landscape has been reshaped by unprecedented monetary and fiscal policy, which has artificially depressed yields on government-related fixed income securities and caused the Barclays U.S. Aggregate Index to become heavily concentrated in low-yielding Treasury and agency debt. To uncover value, we have looked beyond the Barclays U.S. Aggregate Index, preferring fixed income spread sectors as opposed to the Treasury, agency, and traditional pass-through mortgage sectors. Currently, we see the most compelling value in asset-backed securities (ABS) and non-agency residential mortgage-backed securities:
- High-quality collateralized loan obligations (CLOs), a subset of the ABS market, have had historically low default rates, with AAA-rated and AA-rated CLO tranches experiencing no defaults or principal losses between 1994 and 2014. With recent spread widening across the capital structure, high-quality CLOs are increasingly attractive on a relative basis, with yield premiums of 100-200 basis points relative to corporate bonds of the same credit rating.
- Non-agency RMBS are supported by strong fundamentals, as delinquency rates have declined significantly from crisis highs, owing to the recovery in home prices and historically low rates. The sector is also benefiting from a healthy technical backdrop.
Please read our full report to learn more about Guggenheim’s outlook for each of the following sectors:
- Investment grade corporates
- High yield
- Bank loans
- Asset-backed securities and CLOs
- Non-agency residential mortgage-backed securities
- Commercial mortgage-backed securities
- Commercial real estate debt
- Agency residential mortgage-backed securities
- Treasury and agency securities
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Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, Guggenheim Partners Japan Limited, GS GAMMA Advisors, LLC, and Guggenheim Partners India Management.