Push For Contrarianism
While investors scoff at lowly returns within the fixed income market, one buy-side manager advocates a contrarian view.
It’s not a newsflash that fixed income managers have had to chase yield as the environment for persistently low rates continues to lag on.
For Christine Hurtsellers, chief investment officer of ING Investment Management’s Fixed Income and Proprietary Investments, market players need to be a “contrarian.”
“You need to be strategic, disciplined…you need to believe in what you’re doing,” she said, adding, “People ask me if I am insane because I am bullish on risk assets even when I see the headlines out of Europe.”
To be clear, Hurtsellers forecasts strong performance for U.S. high yield debt and commercial mortgage backed securities due to “strong seasonal performance that will support credit”. Her team’s portfolio is currently 50 to 60% of risk assets.
“It’s possible that macro events (the Eurozone debt crisis) can override seasonals but I feel there will be a rally in spreads. It’s painful to be so risk averse in cash because spreads can widen easily and the carry advantage of high yield is so high,” said Hurtsellers.
ING’s view overall supports that U.S. economic data is stabilizing and is not forecasting a recession for 2012.
While the problems of Europe are significant, Hurtsellers predicts that problems emanating from the region will affect investment grade credit that is dependent on large banks for support; an assertion that also holds true for some debtors in the emerging markets that depend on the European banking system.
Still, Hurtsellers is positive on the direction of the emerging markets, in general. “The credit quality is improving, the yield curves are steep…they’re going through a traditional business cycle.”
In addition, the liquidity flowing out of Europe will flow into the emerging world, according to Hurtsellers.
Electronification of the municipal bond market also presents a large opportunity.
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