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Howard Marks Sea of Change - Coggle Diagram
Howard Marks Sea of Change
Low interest rates era 09'-21'
Lower interest rates make investing in debt instruments less attractive
Investing in low interest rates is like moving on a walkway in airport
New era '22 onwards
Successful investment will come from bargain purchase and adding values to the assets owned
Lending, credit, or fixed income investing will be better off
expected pre-tax yields from non-investment grade debt investments now approach or exceed the historical returns from equity.
ICE BofA U.S. High Yield Constrained Index offers a yield of over 8.5%
CS Leveraged Loan Index offers roughly 10.0%
credit instruments should probably represent a substantial portion of portfolios . . . perhaps the majority.
Downside
Default
Rates go back to near zero
Credit instruments don't have much room for appreciation
Bonds and credit can be fluctuated
The HY returns are nominal
Oaktree investment
Focus on credit investing
Advise clients to sell everything and invest in 9% HY Bond
This isn’t a call for dramatically increased defensiveness. Mostly I’m just talking about a reallocation of capital, away from ownership and leverage and toward lending.
Bottom line is
Credits are highly competitive versus the historical returns on equities,
exceed many investors’ required returns
Credits are are much less uncertain than equity returns
believe significant reallocation of capital toward credit is warranted.
Investors
Few has faced high interest rates era (started work in 1970s), or haved work for more than 43 yrs.
the scarcity of veterans from the ’70s has made it easy for people to conclude that the interest rate trends of 2009-21 were normal.