Stories by Greg Zappin
By Greg Zappin | October 12, 2017
The daily record highs in the equity markets and the relentless grind tighter in the credit markets elicit both feelings of marvel and trepidation. As you can see in the chart above, revenue and EBITDA are growing at strong levels across the companies in the S&P 500. The uneasy feeling in the fixed income market comes from the disparity between valuations at or near their post crisis tights versus the constant barrage of negative news outside of Wall Street – North Korean war talk, devastating hurricanes and fires, mass shooting in Las Vegas, and dysfunction in Washington. For most high-yield investors, waiting for the big pullback by sitting in cash is not an option, as the active manager gets compensated to take risk and outperform an index. It’s easy to get distracted in this type of market. When I sift through all the noise, I have found the best way to construct a credit portfolio is to rely on business fundamentals as a guiding light.
By Greg Zappin | August 17, 2017
Despite criticism for acting too slow or being backward looking, rating agencies and the credit ratings they assign are still relevant in the corporate bond market today. Ratings trends can be a useful, albeit imperfect, tool to access over credit quality in the market and sometimes offer a source of alpha if future ratings direction can be correctly anticipated. Non-financial credit ratings are based on fairly transparent criteria, particularly the leverage and profitability metrics. It’s the qualitative judgments about competitive position, industry dynamics and financial policy that are grey areas. While new issue ratings have proven to be an accurate gauge of default risk over time, the timing of subsequent ratings actions is a big market gripe. Ratings are meant to look through cycles, which can create big gaps between an issuer’s ratings and bond pricing and current fundamentals.
By Greg Zappin | June 22, 2017
The current business cycle has become one of the longest on record, and based on our intermediate-term outlook, it could end up rivaling the 1991-2001 period in terms of its duration. Interestingly, because of the muted nature of the recovery and broader deleveraging that has occurred, the excesses that typically build as growth accelerates have not emerged, and therefore the current credit cycle is less extended.
By Greg Zappin | March 2, 2017
The high yield market continues to be a strong relative and absolute performer, up about 2.5% year-to-date (YTD) following a greater than 18% total return in 2016. Virtually all sectors have generated positive excess returns this year, except one: retail. The J.P. Morgan U.S. High Yield Index has tightened 28 basis points (bps), while the retail sub-index has widened 100 bps YTD. Often it pays to be a contrarian and add to sectors that are out of favor and have materially underperformed. However, the situation in retail is neither cyclical nor supply driven.
By Greg Zappin | October 27, 2016
Oil, copper, steel, gold and other industrial and precious metals tend to garner most of the attention in the credit markets when talking about the commodity complex. Rightly so, as they serve as proxies for global gross domestic product (GDP) growth, flight to quality/risk sentiment and Chinese demand.
By Greg Zappin | August 25, 2016
Fixed income total and excess returns continue to impress, and 2016 is on pace to collectively be one of the stronger years for spread product in the post-crisis period. An asset class that has performed well, but has lagged on a relative basis, is leveraged loans.