NEW YORK, February 25, 2021 (GLOBE NEWSWIRE) – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today presented its outlook for premier bank and high yield lending quarter 2021. Entitled “A Ripe Environment for Strong Credit Performance,” the report explains why we expect lower default volumes, improved rating migration and a pickup in corporate earnings. These fundamental improvements, supported by another round of tax breaks and the deployment of a successful vaccine distribution, will facilitate a reduction in leverage ratios and spreads remaining close to current levels.
Among the highlights of the 16-page report:
- The continued US recovery, significant help from Congress and an accommodative monetary policy form the basis of our positive views on credit. Business fundamentals are expected to recover this year as consumer spending begins to normalize with the rollout of COVID-19 vaccines.
- While the leverage ratios of leveraged credit issuers increased in 2020 and interest coverage declined, other data was not as negative. In the third quarter of 2020, year-over-year income was only down 2.8% on a median basis and net debt growth was only 1.8%.
- It is important to note that issuers of leveraged loans have seen a 60% increase in cash and cash equivalents, assets that they will surely put to use in 2021, as the maintenance of an excess of liquidity is becoming less urgent for companies and junk for investors.
- Debt ratios and interest coverage are expected to improve in 2021. The increase in indebtedness and the decrease in interest coverage in 2020 are almost entirely attributable to lower profits. The economic recovery and the associated improvement in consumer spending should help remedy this.
- While we are not avoiding any sector entirely, including transportation and airlines, there are plenty of opportunities in the middle of the fundamentals and valuation stack without significantly expanding risk. Some sectors are consumer discretionary, business services, metals and mining, financial services, media, pharmaceuticals and manufacturing, to name a few.
- History shows that there is more room for credit spreads to compress relative to T-bills, with spreads still between the 20th and 30th percentiles in historical observations going back to 1998. In addition, the History has shown that after recessions, there is a prolonged period during which spreads can persist at low levels for several years, even long after the Fed begins to tighten monetary policy.
- With expectations for consumer spending to normalize and business investment to increase, we believe history is about to repeat itself. While there may be short-lived setbacks in the markets this year, we expect the current cycle to take some time and we would welcome these opportunities to buy at better prices.
For more information, please visit http://www.uggenheiminvestments.com.
About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with more than $ 246 billion1 in total assets through bond, equity and alternative strategies. We focus on the risk and return needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers and high net worth investors . Our more than 300 investment professionals conduct rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and under-tracked. This approach to investment management has enabled us to offer innovative strategies offering diversification opportunities and attractive long-term results.
1. Assets under management of Guggenheim Investments as of 12.31.2020 and include a leverage effect of $ 13.7 billion. Guggenheim Investments represents the following affiliated investment management companies of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Corporate Funding, LLC, Guggenheim Partners Europe Limited, GS GAMMA Advisors, LLC and Guggenheim Partners India Management.
There are risks involved in investing, including the possible loss of capital. The potential impacts of the COVID-19 epidemic are increasingly uncertain, difficult to assess and impossible to predict, and can lead to significant losses. Investments in fixed income instruments are subject to the possibility that interest rates will rise, causing their value to fall. High yield and unrated debt securities have a higher risk of default than investment grade bonds and may be less liquid, which can increase volatility.
One basis point is equal to 0.01%.
This material is distributed or presented for informational or educational purposes only and should not be taken as a recommendation of any particular security product, strategy or investment, nor as investment advice of any nature whatsoever. This document is not provided in a fiduciary capacity, may not be relied upon for or in connection with making investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. The content hereof is not intended to be and should not be construed as legal or tax advice and / or legal advice. Always consult a financial, tax and / or legal professional regarding your specific situation.
This material contains the views of the author, but not necessarily those of Guggenheim Partners, LLC or its affiliates. The opinions contained in this document are subject to change without notice. The forward-looking statements, estimates and certain information contained in this document are based on proprietary and non-exclusive research and other sources. The information in this document has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Past performance does not represent future results. There is no representation or warranty as to current accuracy, nor is there any liability for decisions based on such information. No part of this material may be reproduced or referenced in any form without the express written permission of Guggenheim Partners, LLC.