Opportunistic Credit: Key Themes for 2017

Market forces at play in 2017

We begin 2017 with a number of new forces at play that can impact investors' portfolios. The Republican sweep in the November elections and the priorities of the new administration are among the top factors investors will be watching closely, and many are optimistic about the prospect of pro-growth policies and fiscal stimulus. But while these emerging trends are significant, there are many secular forces that have been present in recent years that will remain in place for the foreseeable future—demographic shifts, ballooning public and private balance sheets, and disruptive technology to name a few—and likewise merit close attention.

Reconciling these forces is a central focus of Highland's investment strategies in 2017, as we believe the interaction between them will give rise to opportunities for alternative investors to capitalize on the resulting fundamental and technical dynamics.

Specifically, we view the public debt of large, leveraged corporate issuers and structured credit products focused on corporate loans as attractive investments. Within these areas, the forces at play in 2017 will create winners and losers, which subsequently present opportunities to generate alpha for patient capital that can assess the valuation of sectors and securities through a rigorous, risk-focused process.

Investible themes

To develop investible themes within the corporate credit universe, Highland maps out broad yet interconnected categories—energy, technology, etc.—and then considers key factors that comprise and link them. Through this framework, Highland’s investment committee has identified the following mega trends that are most likely to influence returns of the various sectors within corporate credit:

A credible handoff from monetary stimulus to fiscal stimulus could create the foundation for unexpected inflationary forces in the U.S.
Fiscal and regulatory efforts have the potential to extend the current business cycle, which had been showing signs of stress for both businesses and consumers.
Even with prospects for higher growth, the current conditions matter: balance sheets are bloated and business model disruption is a real threat for many industries.
Market flows, catalyzed by seven years of financial repression, have led to over-crowded ends of the risk spectrum, raising liquidity premiums for stressed, publicly traded corporate debt.

Read about these trends and their respective investing implications in the latest white paper from Highland’s credit product strategy team. Click the “access exclusive content” button to read the full white paper.

Disclaimers & Disclosures

This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document. It should not be assumed that any securities discussed in this commentary will increase in value. Highland Capital Management, L.P. (“Highland”) will not accept liability for any loss or damage, including, without limitation, any loss of profit that may arise directly or indirectly from use of or reliance on such information.

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