The search for a sustainable return has led many pension schemes to allocating more investment to a credit solution. Jeff Boswell and Garland Hansmann of Investec Asset Management outline how unconstrained credit strategies could help address the challenges.
Global growth remains lacklustre and the outlook for inflation highly uncertain. As a result, central banks are continuously looking at the effectiveness of their monetary policy and how to sustain the economic recovery. This has resulted in government bonds losing their income-generating qualities, with investors having no choice but to look elsewhere. Unconstrained credit strategies typically offer a higher yield, while furnishing defensive qualities via risk management using several different credit asset classes. The strategy seeks to provide a strong income element on a consistent basis that few other assets can provide. An investor must also consider the security of that income. If, for example, income generation relies on equity dividends, there is a risk that these could be deferred in the case of a bad year or poor outlook for the firm. The coupon of debt securities is, on the other hand, predetermined.
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