As we look ahead to 2025, the investment landscape is marked by increasing uncertainty and market volatility. In this environment, the importance of fundamental research coupled with bottom-up security selection becomes paramount in achieving consistent alpha.
In recent years, corporate bonds have delivered notable returns, providing not only attractive yields but also a hedge against government bond volatility. The asset class has seen strong flows, a trend expected to continue into 2025, driven by higher starting yields, robust corporate fundamentals, and a positive US growth sentiment. However, this demand has compressed credit spreads, leading to valuations that pose both opportunities and challenges. When yields are high yet spreads are tight, active managers may feel tempted to pursue outperformance by taking more risk, potentially compromising on quality. In the face of the 2025 outlook, marked by divergent central bank policies and geopolitical uncertainties, such a strategy may prove risky. A focus on bottom-up security selection can empower active managers to generate alpha in a risk-controlled manner. Join us as we explore how to unlock consistent alpha amidst the challenges of tight valuations and market volatility.
