Sharing our convictions

The Bank of England have just added to the debate about how much of the recent surge in savings will be deployed in the form of consumption as we return to ‘normality’.

How do you identify risk from water stress? This blog looks at causes and vulnerability by business and location. Population growth of 750 million this decade and climate change will keep water stress rising. Companies need to adjust to the value of water before the market prices for scarcity.

Alibaba had hoped to position Ant with a greater emphasis on the “tech” part of the business and the margins and returns that usually accompany that model, but now it clearly could be a much less profitable, albeit still very large and successful, financial holding company. Portfolio manager Brian Bandsma breaks down what increased regulatory scrutiny means for some of China’s large internet companies.

Our end of year view on the 10 year is 1.50, but we could get there a lot quicker - now is not the time to be brave on Treasuries.

The last few weeks has seen healthy issuance in the high yield space, including multiple billion pound deals, the most recent of which, Asda, priced on Wednesday. This was an interesting deal for a few reasons, not least because it is the largest sterling high yield deal of all time

This deal, backed by a £472m pool of owner-occupied mortgages partially securitised in a previous transaction, drew over £1.2bn of orders and was printed 10-30bp tighter than initial price guidance depending on the tranche, reaching pre-COVID tights.

Ultimately, the fact that the Klockner deal is not marketed as a green loan but still includes ESG-related covenants is proof that ESG needs to be integrated into an investor’s credit work as a matter of course, something we have been arguing for years.

We think it is indeed time to begin the search for recovery stories and deleveraging credits in sectors where the execution strategy is likely to succeed.

I think it’s likely we’ll see new cycle tights for the European CLO sector this year, so in addition to healthy income we believe there is plenty of room for capital appreciation as prices are being pushed higher in the secondary market.

We think this current pause in the global rally is healthy and gives investors a rare moment to reassess, but from a fixed income credit point of view we would not expect too much of a dip.

European ABS primary markets have started 2021 at the solid pace that most market participants expected. The market saw a patchy Q4 in which activity petered out early, not helped by the dominant UK market suffering some hesitation whilst tightrope Brexit deal talks went to the wire, but also as a result of a rather more simple fatigue that appeared to have set in.

In our view the rationale for the premium is certainly weakening and, of course, we can no longer call it a ‘Brexit’ premium.

TwentyFour AM partner and portfolio manager Chris Bowie looks back at investment grade credit market performance in 2020 and provides his outlook for 2021

George Curtis discusses credit markets in Q4 2020 and provides his outlook for the year ahead

TwentyFour AM partner and portfolio manager Douglas Charleston discusses Q4 performance for ABS markets and provides his outlook for 2021.

The market craves stability and transparency. As an efficient auction mechanism, it relies on visibility to price stocks and economic activity. Typically, the market—and people in general—do not like change, but this time, as we stand at the precipice of a tremendous change, what we are seeing is actually a potential return to real stability, normality and transparency.

We view ESG as integral to a company’s long-term potential – much like safety when driving. If you drive without using the mirrors, it does not mean you will get to the supermarket quicker or slower the first year, but with time the chances of a costly encounter rise.

For high yield issuers 2021 has started in a similar vein to 2020, with the technical backdrop providing an attractive environment for capital raising.

Our analysis indicates European ABS investors can carry forward little concern about nasty default surprises, and this is likely to be important when considering total returns for 2021.

Tesla’s current valuation reflects aggressive assumptions about its dominance of the electric vehicle market and its ancillary businesses. While parts of Tesla’s exciting story may materialize, progress is unlikely to be as linear as the market suggests. In fact, the market may be overlooking several key risks

At the moment CLO spreads are tightening, as they are right across credit. However, we haven’t had any CLO primary deals come to market so far in 2021, so we are operating in a bit of an informational vacuum, at which point these cross-asset class comparisons can be useful.

As we have said many times over the past few months, this cycle is likely to be remembered (among other reasons) as being exceptional for its unprecedented momentum.

So while we do believe inflation will push higher in 2021, we don’t think this will be a major issue for the central banks.

Partner and Portfolio Manager Felipe Villarroel reflects on markets in 2020 before giving his inflation outlook for 2021