Home etftrends.com American Century’s Greenblath on Fixed Income for Rest of 2024

American Century’s Greenblath on Fixed Income for Rest of 2024

Fixed income has come back to the fore for many investors looking at their portfolios, and unsurprisingly so. The Federal Reserve’s battle against inflation has reached a period of relative stability, while the rate cut craze has also ebbed away.

In this environment, investors can start to plan ahead in fixed income. American Century’s Vice President and Director of Corporate Credit Research Jason Greenblath recently shared his take on the fixed income landscape with VettaFi.

See more: What Advisors Told VettaFi in First Half

Greenblath, who joined the firm in 2019, pointed to a real “thirst and desire for yield” among investors. Recessionary fears have eased, too, influencing overall market sentiment.

“Our feeling in our outlook is that economic figures have surprised to the upside, and the probability of recession has massively declined,” he said. “If you look at inflows into high-grade credit or a high-grade asset class from, let’s say, the end of October through last week, we’ve had three weeks of minor outflows. And every other week has been multiple billions of inflows.”

Fixed Income: Yields and Spreads

The team is looking at asset-backed securities for attractive yields and spreads, Greenblath noted. The spread side of the equation in incremental degrees of credit risk is not compensating investors all that much, he added. Short duration is one option Greenblath and his colleagues are considering.

“Our view is that we want to be involved, ultimately. We want to be engaged in the market,” he explained. “The way we’re doing that is by owning shorter duration, shorter maturity instruments.”

Meanwhile, Greenblath said the firm is underweight in corporate credit due to valuations rather than fundamentals. In terms of providing income, they’re looking at new issues offering 7%, 8%, or even 9% coupons. As yields have come down, however, those higher  coupons have become rarer.

He did point to an area he said could be controversial in the form of so-called contingent capital securities.” European banks have often offered those securities, Greenblalth noted. A write-off by Credit Suisse and subsequent purchase by UBS created significant dislocations in that space, he said.

American Century’s team looked to shorter call structures from the securities, which are perpetual in nature. Typically, they come with a five- or 10-year reset rate, with banks able to either allow them to reset and then extend, or take them out if they’re too expensive.

“What we’ve done is  added over the last 10 months quite a large position,” Greenblath said. “We’re earning anywhere between 7% and 9%. Again, similar theme, short duration, very high probability they will be called. In the event they’re not called, the resets are very, very lucrative for us as holders.”

“They’re with investment-grade parents; these aren’t crummy little banks we’re buying from,” he added.

Cash and SDSI

All that said, many investors and RIA clients are still hesitant to get out of cash. For those investors, Greenblath said he’d point to a short duration strategy like the firm’s Short Duration Strategic Income Fund (SDSI). The strategy is offering a 6% yield as of late June, kept simple for rounding purposes, he noted, with a duration of two years.

The team believes the Fed has reached the end of its hiking cycle, Greenblath shared. The strategy is positioned for wider spreads, he added, with plenty of liquidity.

“Cash … I understand it’s yielding 5.3% or 5.4% if you’re rolling T-bills,” Greenblath said. “But if you want to move out of that asset class, the next landing point would be something like short duration strategic income. You can still benefit if rates do get cut, you’ll potentially get a total return kicker on top of the yield.”

Fixed Income Looking Ahead

Greenblath emphasized that the biggest strength for the team at American Century is the ability to be nimble. It’s smaller size in fixed income (AUM at $42 billion), he said, and good relationships with syndicate desks empowers them to build high-conviction fixed income portfolios.

Looking ahead, and responding to other factors that bear mentioning, Greenblath pointed to a counterexample. While elections get huge media attention, he underscored that the firm is not altering its portfolios for any specific U.S. election outcome. Some recent elections do impact outlooks, such as in France and Mexico. But the U.S. election has not done so.

Investors have a lot on their plate right now, and finding good options in fixed income remains a priority. For those looking for a firm with a strong research team, American Century may be one to watch.

For more news, information, and strategy, visit the Core Strategies Channel.

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