Investors have become increasingly uncertain of the investment landscape given the various economic and geopolitical factors which remain in flux. According to the Nuveen Institutional Investor Uncertainty Barometer, investors feel we are in a period of elevated macroeconomic and geopolitical uncertainty with 93% receiving an Uncertainty Score above the normal level of 50.
Economic and geopolitical certainty seems a long way off in the current environment, and uncertainty is rarely good for investors. In such volatile conditions, it is important to diversify portfolios for the long term, identifying asset classes which offer resilience in strained market conditions. In the following sections, we explore how different alternative credit asset classes can provide this resilience for investors.
A greater emphasis on quality
Concerns of a full-blown recession have subsided somewhat, though the higher rate environment will mean that any economic slowdown will be more painful for investors, placing a greater emphasis on quality. The current environment continues to put a strain on duration positioning, with this acceptance of higher interest rates making it challenging to generate returns simply by lengthening duration.
This is where investors may find more success in entering the credit market, though selectivity is crucial. Complicating matters further is the continued geopolitical instability in different regions. The Middle East has been at the forefront of this in the first half of 2024, as Israel’s conflict with Palestine and Iran has threatened to unravel further. Elsewhere, Russia’s invasion of Ukraine continues to weigh heavily on Europe.
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Supporting documents
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