Insights and market updates

With only one issuer defaulting in the first quarter of 2017 (compared to eight in the same period 12 months ago), the emerging market (EM) hard currency corporate bond asset class has until now met expectations that its default rate could be significantly lower in 2017. Improvements in both macro and corporate fundamentals have helped this outcome, providing relief for many EM bond managers who recently had to navigate through a particularly punishing time.

In the latest M&G Optimal Income Fund update video, Richard Woolnough, Fund Manager, discusses the fund’s current position, what are the opportunities and threats he sees and  what the outlook is for Fixed Income.

Value as an investment style has underperformed in emerging markets for several years. As a result, we believe there are currently opportunities for value-focused investors, particularly in economically sensitive areas. With valuations looking attractive relative to developed markets and improving company fundamentals, we are optimistic about the outlook for emerging markets.

US stockmarkets are currently trading close to all-time highs. However, we believe there are still opportunities in the market for value-focused investors. Value as a style returned to favour in 2016, but this followed a sustained period of underperformance. The valuation gap between the cheapest part of the market and the most expensive remains extremely wide and should narrow, in our opinion. By adopting a selective, diversified approach focused on finding cheap stocks with robust fundamentals, we believe the fund is well positioned to take advantage of the value opportunities currently present in the US market.

For a quick snapshot of the equity market over the past month and our latest theme, please download our Equities market perspective note.

In this issue, we concentrate on some of the special situations taking place in the convertibles universe. Our market lends itself to various kinds of innovation, and recently, there have been a number of thought-provoking developments, designed to either encourage holders to sell their convertibles or accept changes in their terms.