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Banks presenting best credit opportunities

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A global wealth manager regards banks as offering the best investment opportunities with regard to global credit markets.

A global fund manager has identified one particular sector as offering the best investment opportunities for portfolio allocations to fixed income in the current economic conditions.

“The banking sector is a sector that we like. It benefits from rising rates. We’ve seen strong earnings from banks so [those signs] are very supportive [of this view],” Robeco global credits client portfolio manager Erik Keller revealed while presenting the Robeco Credit Quarterly Outlook Q1 2022.

Keller pointed out valuations are also providing a compelling case for favouring banks in the credit space.

“From a valuation perspective we like to be invested in banks. When you look at banks in Europe, their non-performing loans have come down, earnings are strong and at the same time banks and also insurance companies can benefit from the rising rate environment,” he said.

While he noted Robeco’s favourable assessment of the banking and financial sectors, he acknowledged cyclicals as another market segment offering good credit investment opportunities.

“We also like the more cyclical sectors … so anything from leisure to automotive names in general. But also, for example, basic industries such as chemical companies that are benefiting from higher commodity prices,” he said.

“Of course, also some of the energy names because we have seen that energy credit has performed well so we’ve seen strong energy prices and these companies are also able to benefit from that.”

Overall, he recommended caution for investors looking at allocations to global credit markets.

“[Is now a good time to be investing in global credit markets?] From a technical perspective the answer is no. We would be cautious,” he said.

“We actively manage risk in our credit portfolios so as an active manager we reduce and increase risk dependent on the opportunity set.

“Therefore from a technical perspective indeed we are more cautious and underweight [in our] risk positioning. We think there will be better entry points in the next three to four months.”

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