The news was both good—credit quality profiles have improved, said Joseph Amato, president and chief investment officer—and bad—“Volatility is here to stay,” said Sandy Pomeroy, managing director and portfolio manager for the MLG group.
Amato said the improving trend is showing itself in U.S. mutual fund assets and a high-yield market, currently about 8.5%, which is making markets more attractive. It’s possible that we will see yields of 8% or more in 2012, he predicted.
Companies have refinanced substantial portions of their balance sheets, Amato noted, and outflows in high-yield markets are still good.
But, he warned, “We’re in a low-returns environment,” and noted that big pension plans require especially careful scrutiny and a long-term outlook for the investment strategy. “You have to be careful not to whipsaw it whether you’re dealing with public or corporate plans: it could be hugely underfunded.“
As Europe’s trouble has deepened—the euro zone “is clearly unsustainable on its current course,” said Benjamin Segal, managing director and portfolio manager—the firm has turned increasingly to emerging markets, finding Latin America particularly attractive, and companies that are servicing the developed world. “Economic growth is going to be harder to come by in Europe,” Segal said. “We’ve all had to become macro economists in a hurry.”
While most people are concerned about what markets are most volatile, Amato said, “We don’t have a S.W.A.T. team going around trying to come up with the definitive implications of what’s going on in Europe.”
Institutional inflows continue to remain strong, said Thomas O’Reilly, managing director and co-portfolio manager for high-yield and blended-credit portfolios. He forecast a year of good returns, but Pomeroy said volatility is an issue that will face investors for the foreseeable future while they reach for places to find returns.
“It’s difficult to be a long-term investor,” admitted Peter von Lehe, managing director of the company’s alternative investments.