Celso Munoz, a portfolio manager with Fidelity Investments, said that he thinks “fixed income is incredibly attractive right now.”
On a panel discussing multi-sector fixed income at VettaFi’s Fixed Income Symposium, Munoz said that he likes Treasuries on the intermediate part of the curve. He also likes high yield and loans.
“Right now, they’re offering 8% to 10% of yield, which is a lot of income,” Munoz said of high yield. He added that while he thinks defaults may tick up, there’s more than enough yield to absorb these defaults.
Munoz added he also liked triple-A CLOs. Meanwhile, he’s more bearish on long corporates, since they’re very sensitive to small moves.
“It pays to be selective within all these different sectors,” Munoz said.
Fellow panelist Jason Greenblath, a senior portfolio manager at American Century Investments, was equally bullish on the asset class. Greenblath said investors “don’t have to reach for yield right now.”
“There’s this tug of war between yield and spread,” Greenblath said. “Credit spreads today reflect a more benign environment for risk taking.”
With yields where they are now, investors aren’t forced to seek yield in junk bonds. “You can be selective,” he said. “When risk isn’t worth taking in one sector, we’re not sitting on the sidelines.”
Greenblath, too, liked triple-A CLOs. He also looked favorably on asset-backed securities, particularly those in the aircraft leasing sector.
Finding Fixed Income Opportunities Through Active Management
The panelists noted that there are a lot of opportunities and a lot of bonds out there. Active funds have a track record of handily outperforming the benchmark.
According to Munoz, the optimal approach is to replace a passive product with something like the Fidelity Total Bond ETF (FBND).
“The risk-adjusted returns are really strong,” Celso said.
Per Greenblath, the American Century Multisector Income ETF (MUSI) offers a higher concentration of yield in a variety of credit sectors not available in passive strategies. He added that MUSI is underweight on bank loans.
“The bank loan market is still resetting,” Greenblath said.
In a poll conducted by VettaFi during the panel, most advisors (40%) think investment-grade high yield corporates offer the best opportunities in fixed income. Treasuries and mortgage-backed securities tied for a distant second place (18%). Finally, 14% of respondents saw high yield as being the best source of opportunities.
Replay for the event is coming soon.
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