Fixed Income Update
AM with a PM
Christopher Gizzo, CFA
Air Date: January 15, 2021
Hi, I'm Chris Gizzo, as a portfolio manager of the multi sector bond and high yield portfolios at Lord Abbett.
Interstitial: Market Environment
We entered 2021 with a constructive view on risk, but we don't think we're going to have as great an opportunity in overall beta like we had following the first quarter of last year.
We're already seeing that active management and selection is going to be extremely important this year. Just take a look at some of the rotations that are currently happening underneath the surface like the big outperformance of small caps and value within equities or the underperformance of double Bs within high yield.
Where active management is taking our team to start the year is in protecting against the potential for higher interest rates and a stronger USD in the near term, in finding bigger upside opportunities in terms of price for fixed income securities and positioning ourselves for further spread compression and maintaining a balance equity portfolio between value and cyclicals and high growth secular winners.
Interstitial: Election Considerations
The impact of the Georgia elections was pretty big on markets early to start this year. The main impact was in much higher expectations for fiscal stimulus which is undoubtedly a near term positive for markets
At some point, the market is going to have to contend with the potential for a higher regulatory and tax burden from this change in the administration and the fact that Democrats might be in control of the Senate, but we think it's too early for us to worry about that. We think that legislation that might lead to those outcomes is not going to be a near-term focus for this administration.
The other impact of the Georgia elections and one of the impacts that it has had on our portfolio is a bigger focus on renewable energy. We think that's very much going to be a sector that is well supported over the next four years.
Interstitial: The Pandemic Picture
On COVID and the impact of the pandemic on markets we continue to recognize that it continues to be a very big humanitarian crisis.
Though we do not think that it is a major market risk and we are encouraged by the prospects for a faster pace of vaccinations as we move over the next couple of quarters.
So, in looking at the portfolio and the sectors that we have exposure to we continue to like those that are exposed to a reopening theme.
That mainly includes leisure, transportation, and energy space. And we think those sectors can continue to be a source of alpha for us going forward.
If you look over the past month the leisure and transportation sectors have taken a bit of a pause, but we think that now it is looking like a good time to add in that they are set to resume their recovery as we move into the spring and the case load from the pandemic hopefully improves
Thank you very much for listening and thank you for your continued interest in Lord Abbett________________________________________
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The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. Lower-rated bonds may be subject to greater risk than higher-rated bonds. No investing strategy can overcome all market volatility or guarantee future results.
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