Market & Topical Perspectives

Solving the Income Dilemma

Solving the Income Dilemma

Long-term investors traditionally have held both stocks and bonds in their portfolios to balance the quest for capital appreciation (stocks) against the needs for capital preservation and income (bonds).

Key Takeaways

  • Key-Takeaway

    Investors can no longer count on traditional core bonds, such as Treasuries and investment grade corporates, for meaningful income, due to factors ranging from depressed yields despite rate increases, deteriorating credit quality, extended duration, higher inflation risk and weakening covenants.

  • Key-Takeaway

    Alternative credit assets—including high yield bonds, direct lending and broadly syndicated loans—may meet investors’ income needs while helping to mitigate portfolio risk and the impact of rising interest rates. To compensate for their lower liquidity and non-investment grade ratings, these assets generally offer incremental yield relative to core fixed income.

  • Key-Takeaway

    Leveraging the broad spectrum of unique risk/return profiles available in the alternative credit markets to develop differentiated investment solutions calls for a robust platform. Beyond the strong underwriting and rigorous investment discipline required of managers in any asset class, First Eagle also has the scale necessary to efficiently employ investor capital in such resource-intensive investments as direct lending and syndicated loans.