In an article for Forbes, George Schultze examines the benefits of investing in distressed securities, even though default rates are low. George predicts that with future interest rate hikes, a new distressed cycle will develop and provide greater opportunities in fixed income investing.
Here is a quick excerpt from the article:
“S&P Global Fixed Income Research expects the trailing 12-month U.S. corporate speculative-grade default rate to decrease to 3.9% by December 2017 from 5.1% in December 2016. They predict the overall default rate for speculative-grade and investment-grade issuers combined to retreat even further, from 2.1% to 1.5% during the same period. Moody’s Investor Services takes a similar view and expects the global default rate for speculative-grade companies to decline to 3% by year’s end from 4.5% in 2016. JP Morgan’s calculations see an even lower default rate of 2.5%. All three sources utilize different methodologies to measure defaults, which explain the different numbers, but they’ve arrived at a consensus in terms of overall direction.”
To read the rest, check out the full article by Schultze Asset Management’s founder here.
Looking Into Diversifying Your Portfolio With Distressed Securities?
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In his Forbes article, George Schultze explores why it’s critical for money managers to have an exit strategy in in place as a check on their fundamental analysis – regardless of how good their fundamental valuation skills may be.
Take a look at this excerpt from the article:
“As a money manager, I’ve long subscribed to the 80/20 rule and continue to put it into practice day-to-day. The idea stems from the Pareto principle which specifies an unequal relationship between inputs and outputs — specifically, 20% of the invested input is responsible for 80% of the results obtained. Although the numbers don’t always work out to that exact ratio, the significance is that the best investment managers make most of their gains from a small percentage of their holdings. The corollary to this truism is that ~80% of most portfolio holdings will achieve sub-par returns, if any. Thus, any good portfolio management strategy should include a well-defined system to reduce or eliminate underperforming inventory. This is particularly true for fundamental strategies due to their embedded human nature biases.”
To read more about this, and get the whole scoop about how it fits in with the 80/20 rule, check out the full piece on Forbes.
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