Trends Watch: Fixed-Income Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Todd Copenhaver, Principal & Deputy CIO, Merganser Asset Management.

What is your outlook for fixed-income investing?

After a historically difficult 2022, the prospects for investment-grade fixed-income look much more balanced. The rise in interest rates has brought more income potential to the table than we have seen in quite some time. While we expect rates to remain volatile, we see the asset class providing downside protection once again.

Where do you see the greatest opportunities and why?

The distribution of available yields across issuers and bond types has taken on a bimodal distribution, with the most defensive areas of the market providing little compensation for risk, and those areas facing more challenging outlooks providing significantly more. While we see many areas as "cheap for a reason," we also see enough pockets of opportunity in areas such as banking, asset-backed securities, and commercial mortgage-backed securities to provide healthy risk-adjusted returns.

What are the greatest challenges you face and why?

Inflation remains the greatest challenge for fixed-income investors. As an asset class with a strong link to the macroeconomic outlook and inflation, the noisy economic picture will likely drive heightened volatility through the balance of the year. While volatility often is the harbinger of value, discerning the head fakes from the true signals will be key to managing risk.

What keeps you up at night?

Fixed-income markets have a more direct exposure to the banking sector than many other asset classes. The whack-a-mole approach to the crisis in confidence in banking has proven ineffective, and until there is a more wholistic policy response, we see elevated probability of a policy misstep.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.