Investment opportunities in fixed income

31 March 2020 | Markets and Economy


In this short video, Tim Buckley, Vanguard's CEO, and Sara Devereux, Head of Global Rates, discuss how the current market turmoil has created a rich opportunity set in credit markets.

Tim Buckley: Sara, before this crisis started, your fixed income team was conservatively positioned. You guys talk about having dry powder. You didn't like where the markets were. You were conservatively positioned. But what's your team up to now? Are they deploying some of that dry powder?

Sara Devereux: That's right. For the better part of a year, we've been underweight in credit. Our feeling was that valuations were too tight based on where we were in the cycle. And for that reason, investors were not getting compensated for the risk they were taking on. Now, however, that has changed. In our investment approach, we start by looking at two different sleeves of risk. We start by looking at liquidity risk and then we look at fundamental credit risk. In terms of liquidity risk, there are several very high-quality asset classes that are currently trading under fair value. We like agency mortgages, off-the-run Treasuries, and TIPS, inflation-protected securities. When it comes to credit risk, it is absolutely a good time to be looking at the market. Valuations are much wider and more attractive. However, I would say selection is critical.

Tim: So, the baby's being thrown out with the bathwater but it doesn't mean you should go for anybody.

Sara: That's right.

Tim: There will be companies that could very well fail in this crisis.

Sara: I totally agree. And so our fundamental credit process is to start with the best names, consider them from a liquidity perspective and a credit perspective, and then there will be certain names we won't be involved in as a result. We try to stick to the most clean names.

Tim: So your team's been busy.

Sara: We've been busy.

Tim: And having walked the floor and talked to a number of them, a number of them are excited about the opportunities they're finding, a lot of the names they're finding out there.

Sara: That's right. We do feel like there's a very rich opportunity set in the market right now.

Tim: That's great. Well that should be great for our investors.




Investment risk information:

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

Other important information:

For professional investors only (as defined under the MiFID II Directive) investing for their own account (including management companies (fund of funds) and professional clients investing on behalf of their discretionary clients). Not to be distributed to the public. In Switzerland, for professional investors only.

The material contained in this video is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.

Funds investing in fixed interest securities carry the risk of default on repayment and erosion of the capital value of your investment and the level of income may fluctuate. Movements in interest rates are likely to affect the capital value of fixed interest securities. Corporate bonds may provide higher yields but as such may carry greater credit risk increasing the risk of default on repayment and erosion of the capital value of your investment. The level of income may fluctuate and movements in interest rates are likely to affect the capital value of bonds.

The opinions expressed in this video are those of individual speakers and may not be representative of Vanguard Asset Management, Limited.

Issued by Vanguard Asset Management, Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Issued by Vanguard Investments Switzerland GmbH.

© 2020 Vanguard Asset Management, Limited. All rights reserved.

© 2020 Vanguard Investments Switzerland GmbH. All rights reserved.