Investment Strategies for 2024: Exploring Fixed-Income Opportunities
As the investment landscape shifts, it is essential for investors to strategize their allocation to fixed-income sectors. According to insights from Janus Henderson, identifying opportunities beyond traditional assets such as investment-grade credit and the Bloomberg U.S. Aggregate Bond Index is crucial for fostering returns in the upcoming year.
Focus on Relative Valuations
John Lloyd, head of multi-sector credit strategies at Janus Henderson, emphasized the importance of focusing on fixed-income sectors that are currently trading at more attractive valuations. While overall yields remain appealing, the tightness of spreads across various sectors poses challenges. “Yields are still compelling overall, but spreads are very tight across a lot of sectors,” said Lloyd.
Performance of Securitized Credit and Bank Loans
Last year, assets like securitized credit and bank loans stood out in the fixed-income market. Lloyd pointed out that even amid robust performance, their yields continue to be favorable compared to historical trends and inflation expectations. He noted, “Over a year period, even if you do hit rough spots, it’s much harder to get a negative return with those starting yields.”
Investment Alternatives: CLOs and ABS
In terms of corporate bond alternatives, Lloyd suggests exploring collateralized loan obligations (CLOs) and asset-backed securities (ABS) rather than sticking solely with investment-grade corporate bonds. CLOs are essentially pools of floating-rate loans, which may not all carry investment-grade ratings. On the other hand, ABS are derived from income-generating assets like auto loans and credit card receivables.
- Lloyd highlighted a preference for higher-rated CLO securities (AAA, AA, A) based on the favorable spread they provide—currently offering around 120 basis points above recent issues, surpassing typical investment-grade credit spreads.
- As of January 31, the Janus Henderson Multi-Sector Income Fund has allocated approximately 13% of its investments to CLOs, and the firm’s Janus Henderson AAA CLO ETF (JAAA) boasts a 30-day SEC yield of 5.37%.
Exploring Agency Mortgage-Backed Securities (MBS)
Lloyd also advises investors to consider agency mortgage-backed securities instead of Treasurys. With government backing, agency MBS have become increasingly attractive due to favorable pricing relative to corporate bonds. “You’re picking up some really good carry versus corporates that we historically haven’t had in the mortgage market,” Lloyd commented.
Evaluating Loan Investments
For investors weighing options, bank loans may offer a competitive edge over high-yield bonds. Lloyd noted that loans provide slightly wider spreads for similar ratings, along with lower volatility compared to high-yield options. Both asset categories performed well, with bank loans yielding a total return of 8.75% last year, compared to high-yield’s 8.2% gain.
Conclusion: Strategic Allocation into 2024
As 2024 unfolds, a calculated approach to fixed-income investments will be vital for navigating the evolving market. By diversifying into sectors with more promising valuations and focusing on lower-risk alternatives, investors can position themselves for potential long-term gains amid ongoing economic shifts.
