Nov 19, 2020
The recent COVID-19 induced market shock has changed the structural landscape for many fixed income investors. Portfolios were perhaps not as stable as hoped and given the continued unprecedented monetary policy, traditional portfolio linchpins (USTs and US Corporate Credit) no longer provide sufficient yield/income. This has left many investors scratching their heads, asking how to achieve their intended return target without taking on significantly more risk. Many other members of the investment community have turned to lower credit quality or illiquid asset classes to combat this, while maintaining a healthy overall exposure to investment grade1. Within insurance, lower credit quality is less palatable given the increases in RBC charges.
We believe there is another alternative: emerging market investment grade corporate debt.
This paper outlines why we believe this fast growing and increasingly diverse US$1.4 trillion asset class, which has higher yields, lower duration, and less leverage than US investment grade, with importantly the same RBC charge, could provide a high-grade complementary antidote to the low return dilemma.
1As defined by the Bloomberg Barclays US Credit Index.