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.
Disclaimers & Disclosureskeyboard_arrow_up
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.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Highland disclaims any obligation to update or revise any statements or views expressed herein. In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Nothing contained herein should be deemed to be a prediction, projection or guarantee of future performance. No representation or warranty is made concerning the completeness or accuracy of the information contained herein. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. Highland and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Highland and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Highland encourages any person considering any action relating to the securities discussed herein to seek the advice of a financial advisor. Includes Highland Capital Management, L.P. and its affiliated advisers.
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