“You have to ask yourself, ‘Is it possible for one party to get the presidency and a supermajority in the Senate?’ And yes, it is possible but it’s not very likely,” Swan says. “Neither party can get their agenda done without a supermajority, so no matter who wins the election, it’s probably going to be more of the status quo.”
Where To Invest In 2020
The managers differed on where investors can go if they want to eke some more significant returns out of the fixed-income portion of their portfolio.
Since fixed income is best looked at as a low-risk, lower-returning asset, Khanna also calls on investors to embrace some longer-duration bonds in their portfolios so they might take better advantage of their diversification benefits.
“We do see value beyond the corporate space in structured products,” he says. “These are asset-backed-securities instruments where you are secured with some underlying collateral on a pool of loans, and it requires more of a statistical analysis than an idiosyncratic analysis.”
Khanna also warns against seeking generic beta in the high-yield space and calls for investors to use an active manager to avoid lower-quality investments.
Elswick, on the other hand, calls for investors to become more conservative and shorten their durations, noting that some value opportunities can be found in the “riskier” sectors of high yield.
“We would recommend selling, underweighting or otherwise reducing allocations to 15-year and 20-year investment-grade corporate bonds—even 10-year bonds,” Elswick says. “Even in the rates markets, Treasurys and other sectors like agency mortgage-backed securities, we would lighten up. The risk-reward of rate risk is uncompelling.”
Adams, on the long-duration side of the argument, posits that emerging- market bonds might be a better play for investors than the high-yield universe.
“Emerging-market central banks have a lot of room to ease policy, contrary to developed markets, if needed,” Adams says. “U.S. high yield looks really stretched. It looks tight given the economic growth we’re seeing, and to that point, we’ve seen a modest pickup in defaults.”