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Fourteen Loomis Sayles investment experts address the key issues they’re watching for the remainder of 2017. Read on for their insights:
Silicon Valley |
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— Rob Forker, Senior Global Specialist, global opportunities team |
Importance of Cumulative Income |
 “Income provides the vast majority of return in bonds over time, particularly in an environment like this where fixed income valuations are stretched. Having a long-term investment horizon often times allows the compounding effect of income to overcome price volatility. Investors with conviction in their research and security selection may be able to ride out short-term volatility and benefit from the cumulative nature of income over the long term.”
— Brian Kennedy, Portfolio Manager, full discretion team |
State Governments Wrestling With New Challenges |
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— Charles Kishpaugh, Senior Credit Research Analyst |
Agency Mortgages |
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— Chris Harms, Portfolio Manager, relative return team |
Auto Industry Deceleration |
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— Steven Bocamazo, Associate Director of Credit Research |
US Banks |
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— Elizabeth Schroeder, Senior Credit Research Analyst |
Global Equities |
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—Richard Skaggs, Senior Equity Strategist |
European Banks |
 "Banks are like tea bags—you can't be sure how strong they are until they're in hot water. Europe is now in the final stages of clearing up its banking system, 10 years after the global financial crisis. This year, three large European banks raised capital while two mid-size banks received bailouts. That's a contrast to the US, where the Fed recently approved capital return by the large banks equivalent to about 100% of their expected earnings over the next year. Should we head into another downturn, I expect that US banks are likely to be more resilient than their European peers for at least the next few years.”
—Julian Wellesley, Senior Analyst, global equity opportunities team |
Media M&A |
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— Amit Kapoor, Senior Equity Analyst |
Subprime Autos — Not a Bubble |
 “There is a lot of headline noise about rising losses in subprime auto lending. However, I believe the securitized subprime ABS market will be just fine—the current deals are adjusting and credit enhancement support has been stable and/or increasing and should be able to withstand moderately increasing defaults. Auto ABS is very different from RMBS—issuers have skin in the game, service the loans, and often take a stake in the deals they originate.”
—Jennifer Thomas, Senior Mortgage and Structured Finance Analyst |
Inflation |
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—Laura Sarlo, Senior Sovereign Analyst |
China |
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— Celeste Tay, Senior Sovereign Analyst |
A Case for TIPS |
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— Peter Palfrey, Portfolio Manager, relative return team |
Agency MBS |
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— Ian Anderson, Portfolio Manager, mortgage and structured finance group |
“Unemployment across developed markets is reaching multi-year lows, but wage growth and headline inflation remain below central bankers’ targets. Why? Headline inflation is a function of prices for both goods and services. The fall in commodity prices depressed goods prices globally, dragging headline inflation lower. Now, with downward pressure on goods prices largely over, wage-driven services prices should be the key driver of headline inflation. Tepid growth across many developed economies appears to be related to under-appreciated slack in labor markets. Industries undergoing structural shifts and increased use of temporary and part-time contracts tempers wage growth.”
“I don’t expect debt levels in China to decline any time soon. In the near term, I expect China’s industrial upgrading process will boost debt levels further as productivity gains take time to be realized. Overall, I see China's growth potential continuing to decline in coming years. Old industries will likely mostly muddle along and get culled down over time while new economies like higher-value manufacturing, robotics and healthcare should be competitive, but not enough to lift overall GDP growth.”
“US and global economic growth remains on track to exceed levels recorded in 2016. US inflationary pressures from tightening labor markets and rising healthcare and shelter costs are forecasted to reassert themselves. Resource utilization rates are rising and slack in the labor market has narrowed. A pickup in inflation pressures later this year may create some surprise volatility, along with a correspondingly more aggressive Fed response. I would expect TIPS to help protect portfolio value in such an environment.”
“I expect modestly positive excess returns for agency MBS versus Treasurys over the next 6 to 12 months. The Fed is withdrawing from the MBS market, but I believe reinvestment will continue through summer 2018. Refinancing incentives remain muted and a prepayment wave appears unlikely.“ 
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Investing involves risk, including risk of loss. The value of an investment will fluctuate over time and it is possible to lose money. MALR020046 |
Market conditions are extremely fluid and change frequently.
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the
subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Information, including
that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This material cannot be copied, reproduced or
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