Value in Spread Sectors
The U.S. presidential election, a trade deal between the UK and the EU, and announcements from the scientific community marked the final quarter of 2020 and signaled a significant moment in history as the world turned the tide on the COVID-19 pandemic that dominated the year. Scientific advancements are likely to continue as the fight against the virus wages on and the focus turns to the logistics of offering the available vaccines to the global population. The quarter also saw the return of some local and regional disruptions to economic activity as restrictions were reinstated to control the virus spread. The disruptions may weigh on near-term economic results, but we believe that the financial markets will remain focused on the progress of distributing the vaccines and the normalization of activity in 2021.
In our view, economic activity and corporate earnings will continue to rebound over the course of the new year. Financial markets pushed higher during the quarter, and we are continuing to find attractive investment opportunities across the many sectors of the bond market. We believe sector and issuer selection in this environment is critical and favors active over passive management. Elevated cash levels and a high degree of personal savings will be a tailwind to growth in the coming quarters.
Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. Bloomberg Barclays Municipal Bond Index is a market capitalization weighted index that measures the long-term tax-exempt bond market. J.P. Morgan GBI-EMGD tracks total returns for local currency debt instruments issued by emerging markets sovereign and quasi-sovereign entities to which international investors can gain exposure. J.P. Morgan CEMBI Index tracks U.S. dollar-denominated debt issued by emerging market corporations. J.P. Morgan EMBI Global Index tracks the total return for the U.S. dollar-denominated emerging markets debt, including Brady bonds, Eurobonds and loans. The Credit Suisse Leveraged Loan Index is a market-weighted index that tracks the investable universe of the U.S. dollar denominated leveraged loans. The Bloomberg Barclays U.S. High-Yield 2% Issuer Capped Bond Index is a market capitalization-weighted index that measures fixed rate non-investment grade debt securities of U.S. and non-U.S. corporations. No single issuer accounts for more than 2% of market cap. The indexes are calculated on a total return basis. The indexes are unmanaged, returns do not reflect any fees, expenses, or sales charges, and are not available for direct investment.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
All investments carry a certain degree of risk, including possible loss of principal.
Past performance is not indicative of future results.