Seeking Efficient Income in Uncertain Times? Broaden Your Horizons

17 January 2025
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Seeking Efficient Income in Uncertain Times? Broaden Your Horizons
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      Monika Carlson| Managing Director, Senior Investment Strategist and Head—Income and Systematic Fixed Income Business Development
      Fahd Malik| Portfolio Manager—Income Strategies
      Transcript

      Monika Carlson: Today's environment is very challenging, and it has a lot of unknowns. It seems like the markets are reacting to different headlines on a daily basis. But investors’ need for income hasn't really changed. So, Fahd, when it comes to navigating the fixed-income markets and meeting that need for income, how do you think people should approach it?

      Fahd Malik: We think markets have evolved, and so should investors. There's a need to focus on the efficient part of efficient income, which means that you should buy assets that produce income, but with good risk-adjusted returns. And in today's environment, you can get that efficient income by being defensive and having a higher-quality portfolio.

      MC: And how do you do that today?

      FM: You have to look for opportunities across the board. Opportunities could be in your backyard or they could be across the globe. We don't think high yield is the only game in town. You got to look for opportunities in emerging markets, in securitized assets, in European high yield and even in investment-grade credit.

      MC: So, the idea is that you have more opportunities to generate efficient income through a global multi-sector lens because not every sector, not every region, has the same risk/return profile, and investors should be able to pull different levers in order to generate the income most efficiently. You not only get the benefits of diversification, but you can also find higher-yielding bonds without sacrificing the overall quality of your portfolio.

      But having said all that, US high yield does sometimes outperform other regions and sectors. Wouldn't you agree with that?

      FM: I think that's right. US high yield had a pretty good streak a few years ago. In fact, it was the best-performing asset class within fixed income. In the global multi-sector framework, if we think US high yield is going to do better, we want to own it. But the reality is, if you look at the last two or three years, [the] Global High Yield Index has actually outperformed [the] US High Yield Index in line with its long-term average, and we think that trend would continue.

      MC: But are you concerned about credit spreads being so tight?

      FM: Low spreads beget lower spreads. Spreads are towards historical lows, but there's nothing saying that they can't remain at these levels for multiple years. Fundamentals in high yield are actually quite robust, and perhaps that justifies the low level of spreads that we are seeing. Also, the policies of the incoming administration may be supportive of spreads.

      MC: It seems like the stars have aligned to generate efficient income through a global multi-sector approach.

      The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.


      About the Authors

      Monika Carlson is a Managing Director, Senior Investment Strategist, and Head of the Income and Systematic platforms for the Fixed Income Business Development team. She is responsible for leading a team of investment strategists and product managers and for driving growth efforts on AB’s fixed-income platform. Additionally, as part of her client-facing role, Carlson represents AB’s market views and portfolio strategies to clients, prospects and consultants globally. She has held several roles at AB, including as the head of the Global Offshore Retail Platform in Product Management. Prior to joining AB in 2007, Carlson worked at Neuberger Berman. She holds a BBA in finance from Baruch College at the City University of New York and is a CFA charterholder. Location: New York

      Fahd Malik is a Senior Vice President and Portfolio Manager on the Fixed Income team, responsible for Income Strategies. His focus is on creating portfolios that utilize a multi-sector approach to generate efficient income. Prior to taking on this role, Malik served as a portfolio manager for AB’s Absolute Return fund. He joined the firm in 2006 and has extensive experience in systematic, market-neutral, risk-mitigating and derivative strategies. Malik holds a BS in electrical and computer engineering from The Cooper Union for the Advancement of Science and Art and an MS in mathematics in finance from the Courant Institute of Mathematical Sciences at New York University. Location: New York