Bom dia,
No início de 2023, poucos teriam previsto que as ações iriam disparar durante o primeiro semestre, com as ações dos EUA a registarem um retorno superior a 20% até ao final de julho e a Europa não muito atrás.
A incerteza macroeconómica em torno da inflação, das taxas de juro e dos lucros das empresas fez com que os investidores evitassem os ativos de maior risco. O resultado foi um enorme fluxo de dinheiro e de rendimento fixo de baixa duração durante este período. De facto, os fundos do mercado monetário e os Títulos do Tesouro estão ambos a caminho de um ano recorde de entradas, de acordo com o Bank of America.
Muitos investidores vêem-se confrontados com os rendimentos atrativos das obrigações do Tesouro e do numerário, com taxas de inflação em queda, mas elevadas, e com a necessidade de gerar um rendimento real para os seus clientes.
Neste ambiente, há uma série de estratégias e classes de ativos que podem valer a pena considerar ou rever. Neste artigo, Doug Abbott, Head of UK Intermediary, Schroders, destaca quatro dessas oportunidades:
Insurance-linked securities (ILS)
As a floating rate instrument, an ILS has little interest rate duration to speak of, leaving it relatively unscathed by the latest bond market rout. If inflationary pressures persist – as most major central banks believe they will – higher rates may be with us for a while. More interest rate rises will feed through to ILS investors as part of their coupon.
In short, the current market represents one of the most attractive markets in which to invest since the ILS market came into being, with yields at very high, indeed record, levels.
Key drivers behind the current market dynamics:
· Demand for reinsurance protection exceeds supply in both the traditional and ILS markets
· Profitability in the traditional and ILS markets in the past few years has been below investors’ expectations. This point and the one above have led to record multiples of spread to expected loss.
· Higher interest rates are contributing to yields (the vast majority of ILS investments earn an interest rate-related return on the invested capital in both cat bonds and private ILS).
The reasons why demand for reinsurance exceeds supply include the following:
· Insured values are increasing due to the growth in economic activity and population globally and to the effects of inflation.
· Insurance and reinsurance capital have not increased at the same rate leading to the emergence of a protection gap.
· The world has experienced apparently heightened loss activity – particularly increased frequency of small to medium-sized events - during recent years which has resulted in lower-than-desired returns for investors in both the traditional and ILS markets.
· The capacity to accept risk among reinsurers is constrained by the appetite for risk on the part of equity investors, equity analysts and credit rating agencies.
· Climate change, and its impact on natural catastrophe events from both a frequency and severity perspective, sits behind the above points. Climate change’s impact is taken into account when assessing the risk from transaction to transaction.
· When demand for reinsurance exceeds supply the risk transfer premium inevitably increases, and continues to increase, until the imbalance between demand and supply reduces.
Securitised credit:
With securitised credit, investors can earn an 8% yield on an AA-rated investment grade portfolio with zero duration and little correlation to corporate bonds.
Securitisation involves bundling the cash flows from various loans, such as mortgages, car loans and credit card payments, into bonds. The largest securitised sectors are mortgage-backed securities and asset-backed securities.
The opportunity today across the securitised market is stark given the two largest buyers of the past 15 years, namely the Federal Reserve and the banks, are absent. This has created a vacuum, with willing buyers able to earn significant diversified income on high quality assets, without taking on duration, and all without giving up liquidity.
Aside from the technical opportunity today, securitised strategies also offer other inherent benefits which are valuable given today’s macroeconomic backdrop:
· Access to tangible asset backed and diversified cash flows vs traditional asset classes.
· Exposure to the consumer, housing and real estate which are fundamentally strong.
· Structure: exposure to thousands of underlying loans, thus reducing any idiosyncratic risk, and structural protection - high up in the capital stack.
· Amortisation: this provides liquidity and de-levers the structure over time.
· Low duration: floating rate securities with little interest rate sensitivity.
Renewable infrastructure
Amid a challenging economic backdrop and the rising risk of recession, it’s worth noting the low volatility and defensive qualities of sustainable infrastructure.
The sector offers more stable earnings growth, lower price volatility and better long-term Sharpe ratios, a measure of risk-adjusted return.
But what is a renewable infrastructure strategy? It involves investing in listed equity of economic infrastructure owners that are aligned to the UN Sustainable Development Goals (SDGs) and/or contribute to an environmental objective. There is a particular focus on regulated utilities (electricity and water networks), low carbon transport (rail) and telecoms (towers).
With higher inflation seemingly here to stay, the inflation-hedging elements of infrastructure come to the fore. Companies are generally able to pass the impact of inflation through to the costs of their services (often with an debt cost pass-through). The sector typically outperforms during period of higher inflation (even if inflation is falling).
The listed infrastructure sector also provides a liquidity benefit versus unlisted infrastructure, as well as a valuation arbitrage opportunity. Listed infrastructure has recently lagged the performance of both MSCI World and unlisted infrastructure valuations, despite strong long-term performance and correlation between listed and unlisted.
Annual spending in the water, rail and telecommunication infrastructure sectors needs to increase by more than 15% from current levels for targets laid out by the UN’s SDGs to be achieved.
We think investment spending levels have reached an inflexion point, driven by systems struggling to accommodate dramatic transformational changes, such as the energy transition, pollution control, growth in streaming and AI.
This inflexion is most dramatic in electricity transmission spending. While the US Inflation Reduction Act (IRA) is stimulating a dramatic increase in renewable investment, it is estimated that over 80% of the potential emissions reductions delivered by the IRA in 2030 would be lost if US transmission expansion is limited to the recent historical pace of 1% p.a. The global power network spend (distribution & transmission) needs to accelerate from 2% p.a. between 2010-2020 to 9% p.a. between 2020-2030.
The need for infrastructure investment is forecast to reach $94 trillion between 2016 and 2040, with a $15 trillion investment gap. Electricity, telecoms, rail and water sectors are expected to account for over 60% of the required investment.
Call overwriting
We see equity call overwriting as a powerful income tool and right now is a good opportunity for these types of strategies. Firstly, call overwriting strategies can add value to equity portfolios when markets are moving down, sideways, or rising more slowly. And secondly, call overwriting strategies are effectively sellers of volatility, which tends to increase during periods of uncertainty.
For those unfamiliar with the strategy, covered call overwriting involves selling a call option on a stock or index that an investor owns. When selling out-the-money call options, the seller retains the potential capital growth up to a certain level (the strike price), but potential growth above that level (over a set period of time) is sold in exchange for an upfront payment. (Selling out-of-the-money means the underlying price of the share or index is below the strike price at the point at which the option is sold – thus the fund still benefits from any share price growth up to the strike price).
In this way, a call overwriting strategy exchanges some potential share price growth for the certainty of an income payment now.
This exchange makes such strategies structurally different to pure equity funds, and means that when markets are rising strongly, we would typically expect the strategies to underperform the same equity model without options.
When share prices are not rising above the strike prices (so potentially in falling, sideways or slowly rising markets), the option strategy can add to performance. This is because the strategies have the upfront option premiums and if the shares remain below their strike prices, there are no settlements to pay on the options, and any upside up to the level of the strike price is retained for the fund.
Over the past couple of years, these strategies have been able to deliver on their income requirements, while also seeing either additive performance from the options or strong participation in the equity upside when markets have rallied.
Currently, if you want to invest in income paying stocks using a call overwriting strategy in the US – for example – you can earn a dividend yield of 5% vs the index yield of 2%.
You can even hold stocks within an income generating strategy that don’t pay any dividends, and still generate a yield from them – such as holding the big US tech stocks at market weight.
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