Global Insights

History teaches investors to think in terms of cycles, but some macroeconomic phenomena are structural in nature and therefore more enduring.  The paper looks at the causes of the structural decline in interest rates and implications for the investment environment.

After a decade of robust returns, uninterrupted global economic growth (despite some regional stumbles), and a seemingly inexorable rise in valuations across virtually all asset classes, investors have become focused on the endgame. Questions regarding the timing of this cycle’s inevitable turn for the worse are certainly worth pondering, but they are hardly the only ones worth asking, nor are they likely to prove to be the most consequential to portfolio performance. Instead, it is the…

As observed most recently in the fourth quarter of 2018, credit (speculative grade loans and bonds) often declines in value during periods of market stress as though it sits pari passu with equity rather than senior to it in the capital structure. As we document in this paper, during the 2008-09 and 2015-16 (energy) market dislocations, creditors earned average total returns of 80% in the six-to-nine months following the market bottom, despite also enjoying a degree of implicit subordination…

In their new paper, Mark Jenkins and Jason Thomas find that middle-market loans have historically yielded one-third (170bp per year) more than large, bank-syndicated loans due largely to their illiquidity. Consequently, study results suggest that investors with the ability to hold loans to maturity can boost returns by increasing exposure to liquidity risk.