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A major theme of 2023 has been the constant compression in volatility. In fact, the volatility index (VIX) is now lower than when the bear market began in January of 2022 despite the S&P 500 being about 10% below its all-time highs.


However, the consensus continues to be that these conditions won’t persist for too long. The longer that rates remain elevated at these lofty levels, the higher the odds that something breaks, causing a cascade of issues that will lead to a spike in volatility and a probable recession. According to Vanguard, a shallow recession remains likely to occur sometime early next year. 


For fixed income, it will certainly be challenging. So far this year, the asset class has eked out a small gain despite rates trending higher due to credit spreads tightening and low default rates. However, more volatility is likely if rates keep moving higher which would likely lead to selling pressure or if inflation does cool which would result in the Fed loosening policy, creating a generous tailwind for the asset class.


Given this challenging environment, active fixed income is likely to outperform passive fixed income as managers have greater discretion to invest in the short-end of the curve to take advantage of higher yields while being insulated from uncertainty. Additionally, these managers can find opportunities in more obscure parts of the market in terms of duration or credit quality. 

Finsum: Fixed income has eked out a small gain this year. But, the environment is likely to get even more challenging which is why active fixed income is likely to generate better returns than passive fixed income.


This market cycle has been unique for a variety of reasons and constantly caught investors on the wrong-footed. Another unique aspect of the current market is the strong performance of private real estate while public real estate has languished. 

For Advisor Perspectives, Carlin Calcaterra and Brendan McCurdy of Ares Wealth Management Solutions investigate whether this is presenting an opportunity to buy the dip in public real estate or if this is a harbinger of weakness for private real estate. 

They use historical data as a guide and acknowledge that public real estate has delivered higher returns over the long-term. But, this is primarily due to higher amounts of leverage with public real estate. Adjusting for this factor, they believe that private real estate is the better investment from a risk/reward perspective.

They also believe that the data indicates low levels of correlation between public and private real estate. Therefore, these instances of divergence are not unusual and not necessarily predictive. 

In fact, 2 ⁄ 3 of the time that public real estate had more than a double-digit drawdown, there was no subsequent drawdown in private real estate. When there was a drawdown in private real estate, it often came at a nine to twelve month lag. This is notable given that the drawdown in public real estate began more than 18 months ago, and the asset class has been recovering in recent months. 

Finsum: A major market mystery is the significant weakness in public real estate while private real estate has continued to generate positive returns. Will this outperformance continue or is public real estate a leading indicator for private real estate?


UBS shared its outlook on fixed income and high yield credit in a strategy piece. Overall, the bank is moderately bullish on the asset class, especially at the short-end of the curve, but doesn’t believe returns will be as strong as the first-half of the year.


Overall, it attributes strength in the riskier parts of the fixed income universe to a stronger than expected US economy which has kept the default rate low. This has been sufficient to offset the headwind of the Fed’s ultra-hawkish monetary policy. 


The bank attributes the economy’s resilience to lingering effects of supportive fiscal and monetary policy and the strong labor market. It’s a different type of recovery than what we have seen in the past where financial assets inflated while the real economy struggled. 


However, UBS believes that the default rate should continue to tick higher so it recommends a neutral positioning. It also sees a correlation between equity market volatility and high-yield credit. While this was a tailwind in the first-half of the year, it believes that it should be a headwind for the remainder of the year given high valuations. 


Overall, it sees a more challenging environment for high-yield credit and recommends sticking to the short-end of the curve to minimize duration and default risk.

Finsum: In a strategy piece on high-yield credit, UBS digs into its strong performance in the first-half of the year, and why it expects a more challenging second-half. 


Wednesday, 16 August 2023 04:35

Quote unquote

Ask yourself: how do you think you’d respond to any investment product quoting a yield of at least 10%?, stated

Off the top of your head, umm…okay, sure? Well, okay, that might be because, to capture a nosebleed level like that, usually, the fund’s rife with risk or the yield’s not sustainable.

Reasonably speaking, the highest yield you can reach on the fixed income side stems from junk bonds. Currently, the iShares High Yield Corporate Bond ETF chimes at approximately 8%.

Meantime, looking north, for this cycle, Canadian interest rate are looking at their high. What’s more, given the reopening boom and rate hike cycle are, by in large, in the rearview mirror, the time’s optimal to peak again at fixed income allocations, according to

When inflation’s less than 3%, the top 15 industries are nearly all cyclical. Not long ago, Canada’s Consumer Price Index receded below that level. In the aftermath of a Fed pause, multiple sectors and, as a whole, the market, tends to perform well six and 12 months afterwards.

Wednesday, 16 August 2023 04:34

Risk not your mojo?

Save the risky business for the movies.

With little risk linked to it, active fixed income is one reason investors are attracted to it, according to

What’s the scoop here? Well, it guarantees the capital of investors and reduces --  and not just a little – the insecurity that it can dispense in the event that if, for one thing, an equity investment’s opted for.

It doesn’t stop there. Additionally, the fixed income shells out a return. While it might not be robust when weighed against other investments, it boasts a reputation ahead of time. That matters since, because of it, investors are positioned to previously know the results it will secure. For conservative investors, it’s what they opt for first.

And talk about versatility. Tactical responses to a cocktail of market climates and shifts in regimes are facilitated by an active approach, according to On top of that, it dishes out the flexibility to leverage pricing anomalies and dislocations that a volatile climate might generate. Additionally, curve positioning could be a good idea to mull.

Category: Eq: Market, 

Keywords: active, investors... etc.

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