Best Areas to Be in Fixed Income Going Forward?

Curious to hear people’s thoughts on what you think the growth areas will be in fixed income investing in the next couple of years and even further going forward. It seems like private debt has really boomed the past 10 or so years. Do you think this will continue or will another area maybe emerging markets for example become the best spot to be in?

Asking someone early in their career trying to determine the best place to be for long-term success.

 

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Starting out? Getting into a seat is the priority - if I were to pick, probably high yield or distressed would be of interest given where we are in the cycle (ha ha - assuming that even exists anymore). You'll get incredible amounts of experience or exposure in both cases. 

EM would be awesome - although I've noticed, purely anecdotally, that it can be challenging without knowledge of the country/language etc. 

 

I’m actually in a high yield seat right now, and definitely very interesting place to be. I would think it should be a good place to continue to be going forward, but wanted to hear other perspectives on where they think the most growth would be over the next few years and if they thought there were certain areas really worth exploring. I think distressed is interesting too but the firm I’m at seems to prefer a law background too which I don’t have and am not planning on obtaining. Any thoughts if you think private debt will continue its torrid pace?

 

sorry never responded to this. But take a look at how important permanent (insurance, endowments, pensions) capital has become to PE firms. If I were a betting man, that'll probably be where most of their AUM growth will come from over the next decade. And they're huge investors on senior tranches in structured credit. The reinsurance/insurance CDO market still hasn't recovered as much as the ABS/MBS market pre-GFC, and is in catch up mode. CLOs are hot as well but have been hot for a while and are more mainstream now (if someone looks into their credit mutual fund in their RIA, there's probably some in there). This fuel is being ignited by the need for yield from perm capital investors.

 

Emerging Market credit. If I could go back in time I would learn one of Spanish/Portuguese/Russian and position myself to be an EM credit analyst. Investors have too little allocation to EM debt in their portfolios, the markets are highly inefficient which allows for alpha opportunities, and EM economies are going to be the growth drivers over the next century. The last thing the world needs is another credit analyst opining on Dish/T-Mobile/JC Penny when there is so much untapped potential in LatAm/CEE/Asia.

 

Ovechkin08

Emerging Market credit. If I could go back in time I would learn one of Spanish/Portuguese/Russian and position myself to be an EM credit analyst. Investors have too little allocation to EM debt in their portfolios, the markets are highly inefficient which allows for alpha opportunities, and EM economies are going to be the growth drivers over the next century. The last thing the world needs is another credit analyst opining on Dish/T-Mobile/JC Penny when there is so much untapped potential in LatAm/CEE/Asia.

Do you honestly believe that Spain/Portugal/Russia are going to be the growth drivers over the next century.

Look- EM is definitely a good spot, but that extreme volatility is why it has never attracted huge allocations.  Over the past century, even the smarterst investors have been getting burned by unstable currencies (i.e. Argentina)  or fraud (i.e. Brazil).

"Sounds to me like you guys a couple of bookies."
 
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With all due respect this is such a bad (yet common) take from non EM investors re: EM

1.) would hope this year has shown everyone that economic growth does not equal asset returns, so who is driving global growth is less relevant. Actually, you may not have intended but your logic supports his view given China was the only major economy in 2020 to print positive growth.

2.) not even going to address the Spain and Portugal part. Roughly 7 trillion GDP worth of Spanish and Portuguese speaking markets outside of Spain and Portugal.

3.) EM hard currency sovereign debt has a comparable volatility to US HY so let’s not use one off cases to override what the data says.

If you can't tell I fully agree with the previous poster. Picking an asset class to specialize in is very different from picking an asset for one's PA. Poor data = ability for humans to add value via research, large dispersions = alpha generating opportunities, nervous allocators = willingness to pay large sums to this that can effectively manage risk in the sector, and negative bias = less people entering career path to compete against. The goal is to look forward for career growth opportunities rather than explain what has happened and the previous poster’s view was as good as any.

There is of course a negative case for EM, but it hasn’t been made.

 

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