Overcoming the Perils of Late-Cycle Investing
Author: Josh Lohmeier, CFA, Aviva Investors
With the timing of an inevitable recession unknown, active investment grade bond managers face the challenge of preparing for a downturn while continuing to seek returns through the ongoing expansion.
Exacerbating these concerns is the significantly-expanded BBB segment of the US corporate bond market. While the growing threat of BBB-to-high-yield downgrades is well-known, the disruptive nature of downgrades within the investment grade universe has created additional pitfalls that managers must navigate.
Given these challenges, how can investment grade bond managers achieve the twin goals of downside protection and alpha generation in today’s pre-recession environment? Josh Lohmeier, CFA, Head of US Investment Grade Credit, explains why comprehensive portfolio construction can give managers an opportunity to improve risk-adjusted returns today, while also layering in downside protection for the inevitable recession ahead.