H&W in the Media
Prudential Predicts Fixed Income Upside Surprise In 2016
The new year is off to a rocky start with slower growth in China, falling oil prices, geopolitical instability and the threat of bankruptcies in junk bonds, all of which contribute to prolonging the volatility that marked 2015.
“While we do not believe the stock market will end the year with a significant decline, we do think that volatility will be a recurring theme in 2016 marked by several intermittent starts and stops in the stock market,” said Bill Walsh, CEO of Hennion & Walsh
Tipp noted that pressure from hedge funds’ forced-selling is pushing spreads out to levels that create buying opportunities for funds with cash to put to work.
“The impression we have is that some hedge funds have been experiencing withdrawals because of a difficult performance environment,” Tipp said. “Buying as spreads widen is an area we’ve had exposure to and that we are actively looking at.”
Investment grade municipal bonds and preferred securities are among the asset classes that have traditionally performed well during periods of heightened stock market volatility.
“In some cases, high-rated collateralized loan obligations (CLO), commercial mortgage backed securities (CMBS) and other structured products offer spreads in the 1.5% and 2% range,” Tipp told Financial Advisor. “We see these as very attractive and that’s before going into the lower-rated area of investment grade whether that be in financials or whether you move into high yield again away from the extraction sector.”