With liquidity flowing strongly into credit markets in recent years, investors are facing a more complex environment where opportunities remain, but selectivity has become essential.
At FOAM, Florian Viros, Fund Manager in the Credit Team at Carmignac, highlighted why credit continues to offer structural advantages within diversified portfolios.
Compared with equities, credit sits higher in the capital structure, allowing investors to generate carry and gain greater visibility on expected performance. The asset class also offers a much broader investment universe: a single issuer can provide multiple instruments, from senior bonds to subordinated debt.
This diversity allows portfolio managers to allocate across different segments, instruments and issuers, creating opportunities for diversification and alpha generation.
However, Viros notes that strong liquidity inflows have compressed credit spreads, reducing the margin of protection for investors.
In this environment, successful credit investing relies on disciplined bottom-up analysis, focusing on company balance sheets, instrument structures and risk compensation in order to navigate evolving market conditions.