Monday, September 26

Investment: Continuity in a time of change

In Muzinich & Co, we carry more than 30 years dedicated to the credit markets, covering the full range of corporate fixed income, from investment grade debt, high yield, emerging markets, absolute return, to syndicated loans and direct financing of companies. On December 2, we presented our strategy and our market vision during our annual corporate credit conference.

Unchanged goals

Our investment philosophy aims to generate attractive risk-adjusted returns on a consistent basis, with the fundamental analysis of companies being the dominant factor in decision-making.

The The purpose of Muzinich & Co is none other than to provide the most stable profitability possible, as well as working with investors according to their needs

Being a private and independent manager gives us a great advantage, we can think in the long term and invest based on it. We believe that financing small and medium-sized businesses is important in local communities, and to the world at large, as we believe that is where entrepreneurship, innovation and growth comes from. That is why one of our goals is to finance growth responsibly.

market vision

Muzinich & Co. expects economic growth in 2022 to remain above potential in developed countries and to slow in developing countries compared to 2021. Companies restructured their balance sheets during the pandemic-related downturn. This provided them with a strong credit rating and earnings cycle, as well as profitability when economies reopened and economic activity picked up.

The Bank balance sheets are healthy thanks to provisions made at the beginning of the crisis and the number of defaults in their loan portfolios is low. In most countries, banks have benefited from the fact that extraordinary monetary and regulatory measures were taken to maintain lending capacity during the pandemic. It would take a dramatic forecasting error (possibly related to Covid-19) or serious errors in the application of economic policies to change these results by 2022.

In assessing the future balance of supply and demand, we assume that demand will remain strong for a long period of time. Business expectations are optimistic and order books are full. At the same time, the demand for labor is not matched by a sufficient supply, causing wages and disposable income to rise.

But nevertheless, You also have to watch out for some potential risks. While the expansionary fiscal policy is not expected to end for the time being, a continuation of the supply chain disruption is expected.

The Increased geopolitical tensions reinforce the need to rebalance supply chains, which could further reduce production capacity. After insufficient business investment spending over the past decade, this is changing, according to the latest data.

However, this would not help solve immediate supply problems. We believe that the current imbalance between supply and demand poses a greater risk than a possible slowdown in economic activity due to closures. The global inflation shock could last longer than initially anticipated, but is likely to be managed differently across regions.

Credit spreads are generally at historically tight levels, with the exception of Asian corporate bonds. Higher volatility and an end to central bank liquidity injections could increase the range of credit spreads for 2022 compared to 2021. However, we continue to favor high yield over investment grade.

On the high yield side, higher hedging costs and relative value analysis currently favor European bonds over US bonds. Regarding investment grade bonds, the US market could benefit from a stabilization of the term curve in the dollar money market after the significant appreciation in November.

In As for duration management, Muzinich may have to be more tactical and active in 2022. Uncertainty around Covid-19, inflation and the responsiveness of central banks are factors that could cause high volatility. Overall, the odds are in favor of a rise in real interest rates, which favors credit risk over duration risk.

In the medium term, we remain confident of a short-duration strategy, but we are aware of some opportunities in high-quality, long-duration assets to tap into inflows from long-term investors, combined with short-duration high-yield credit.

‚óŹ Consult the fund managers guide of the magazine Investment to know the who’s who of the sector in Spain.