High Grade Review and Outlook: 1st Quarter 2016
This commentary reviews the previous quarter and discusses our outlook and investment approach for the next quarter for our high quality taxable fixed income strategies for endowments, foundations and other non-taxable entities.
- Although 2016 opened to a confluence of market concerns over slumping energy prices, defaulting energy loans, and decelerating Chinese growth, we believed that markets were overreacting.
- The trends in spread movement and performance among corporate sectors have kept corporate allocations attractive, although financials weakened in the earlier part of the quarter as investors became concerned about profitability for banks in a low growth environment.
- Outperformance within our strategies was generated through our continued overweight to the corporate sector and our overweight to TIPS, although our overweight to higher-quality corporates contributed to a lower yield.
- We anticipate the Fed to wait for inflation to be more securely embedded in the economy before raising rates and will likely be influenced by global uncertainty, fears about deflation, and concerns that a stronger dollar is a destabilizing force in the world economy.
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