Strategic Income Quarterly Update – April 2021

For some time now, collateralised loan obligations (CLOs) have in our view been one of the standout risk-adjusted opportunities in all of fixed income, and in recent years (including this one) their performance has lived up to that billing.

In 2017, when the Federal Reserve (Fed) was preparing to shrink its balance sheet, then-chair Janet Yellen famously described the process of quantitative tightening (QT) as being "like watching paint dry."

This year will go down as an important period for the European insurance sector, which is concluding its effort to phase out capital instruments issued under the old Solvency I framework and replace them with more modern Solvency II structures.

There is an emerging sense of unease in the markets around the scale and productivity of corporate investments in AI. As fixed income investors, not equity or tech managers, we will not aim to assess the longevity or possible applications of these nascent technologies, and nor should we opine on when or by how much equity markets might go up or down.

Jerome Powell and his Federal Reserve (Fed) colleagues decided to cut the Fed Funds rate by 25bp to 3.75-4% at last week’s policy meeting, marking 150bp of cuts since the cycle began in September 2024.

Amid tariffs, bankruptcies, and uncertainty, credit fundamentals remain strong. Elevated yields and solid corporate balance sheets favour income-focused fixed income strategies over government bonds, even as volatility persists.