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In Search Of Credit Quality - Q&A With Eve Tournier And Sonali Pier

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  • At the beginning of this year, optimism seemed to fuel markets, taking valuations to levels that we felt, in many cases, did not allow any room for disappointment.
  • Pharmaceuticals and healthcare is another sector that is traditionally defensive and that could also see increased sector earnings due to this crisis.
  • Emerging markets entered this crisis with broadly positive fundamentals, but 40% of EM countries are net oil exporters and many are heavily dependent on tourism, which will be a challenge.

The coronavirus pandemic has brought about a new investment landscape in which some companies and sectors have fared better than others. Significant market dislocations have also created potential opportunities in the higher quality areas of the credit spectrum.

Global credit markets have reacted to the Coronavirus crisis with force: Credit spreads have swung from well below to well above long term averages in a matter of weeks, raising concerns about increasing debt levels in a recessionary environment, but also creating opportunities for the prudent and patient investor. In this Q&A, portfolio managers Eve Tournier and Sonali Pier share their interpretation of recent market moves, and their views on what parts of the market investors should pay attention to - and which to avoid.

Q: What were your thoughts about valuation levels towards the end of last year, when market optimism was high?

Eve Tournier: We have always favoured diversification, as that is one of the best ways to help protect investors from unexpected shocks and add resilience to portfolios. At the beginning of this year, optimism seemed to fuel markets, taking valuations to levels that we felt, in many cases, did not allow any room for disappointment. We obviously did not anticipate this black swan event, but the extreme optimism made us cautious.

Q: How have your views changed given the new environment?

Sonali Pier: Our preference for quality, caution, and diversification has not changed but valuations have.

We find that the investment-grade and asset-backed security sectors provide an attractive liquidity premium, which can help compensate for the increased volatility and uncertainty.

On the other hand, we remain prudent on high yield and emerging markets given the increased vulnerabilities and default risk. Careful sector and individual security selection is critical to finding opportunities in those markets.

We continue to be

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Comments (2)

If these clowns tried to influence my investing with this kind of tripe, I'd just laugh.
Investing based on deviations from a 35 year average ? Yup, just funny that
these people get paid to write this wishy-washy palaver.
Emerald profile picture
@Diego Montalbon, raconteur, totally agree. Big picture garbage.
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