Hello, and welcome to Credit Edge of Weekly Markets Podcast. My name is James Crombie. I'm a senior editor at Bloomberg. This week, we're very pleased to welcome Alan McKnight, chief investment officer at Regent's Bank. How are you Ellen?
Doing great this morning, James, thanks for having me.
Thank you so much for joining us today. We're very excited to hear your credit market views, and we're also delighted to have back on the show. Matt Goointner with Bloomberg Intelligence.
Hello, Matt, Hi, everyone, thanks for having me back.
So just set the scene a little bit here. Credit markets are projecting an air of calm. Spreads US super tight. There's not very much difference between investment grade and junk bonds when it comes to risk premia. On debt rated double B you're getting paid as much for default risk as you were in twenty nineteen. The gap between doubleby and triple B rated bonds hasn't been this tite since before the pandemic. The good old returns are okay, but it's not really the year of the bond a lot
of people had expected. That's mostly because of rates which remain elevated, undermining total returns and also keeping pressure on weak companies that have a lot of debt. Shorter duration assets like high yield and floating rate loans are doing all right, though not as good as equities, and we've seen a ton of issuance, most of it for refinancing, so net supply is still thin and portfolio managers have a lot of cash to reinvest. That's a very bullish
technical factor that we should discuss today. Credit markets are supported also by strength in the US economy, which is good for US companies, but corporate bonds in Europe and Asia are actually doing better than in America, boosting the case for geographic diversification. And while technically credit markets have legs, fundamentally there's more and more to worry about inflation, recession risk,
debt defaults, bankruptcies, commercial real estate, stress, war, geopolitics. Plus everyone's loaded up on US assets going into a very noisy presidential election. I've used the word complacency a few times on this show, given market valuations, but then again, there's just this wall of cash. If you bet against it, you're potentially not You're potentially going to miss out on another big rally. So I want to start there, alan what's your take, What do you expect to see in
credit markets in the second half. Where do we go from here?
Well, I think as you laid out both the opportunities and the risk there right now, certainly the market has been incredibly tight this year, particularly in light of a slowing global economy, and so as we think about the back end of twenty four and start looking out into twenty five, we think that you could actually continue to do well on the investment grade side and on the high yield side, albeit we're going to see spreads widening a little bit as we get through the election and
we start to really focus in on what policy is going to be. To your point, on the wall of cash that is sitting out there, it's really remarkable to us just how much capital is on the sidelines and
is waiting to be deployed. And I think part of that is visible via the supply that we've seen in the credit markets, where we've seen up over twenty five percent on a year of year basis in terms of supply coming in, and the demand has been insatiable, and the coverage audit has been has not skipped a beat. And so I think to that end as we go to the end of the year next year, it does make us wonder will that wall of capital continue to
fund these deals. We haven't seen a hiccup in it yet, but that's something that we're we're watching closely.
This is a Matt with the Bloomberg Intelligence So I'm one of the five hundred analysts and strategies here with the Bloomberg's research department. When I look at WORP, which is our world indust rate probability function on the term, it looks like the consensus view for the FED to
cut at the end of summer in September. That would mean that we'd have a historically long pause by the FED, which contrasts with BEA's chief rates strategist viewing late fall more likely, while we've I guess on the past who've highlighted cuts may not come till year end. So are you in the consensus camp Allen for a September move or what's regions of view?
We are. We're in the consensus camp, which always makes us a little bit uncomfortable. It's a little prickly feeling to be in the consensus camp. And to your point, this is the second longest pause we've ever had and rivals number one, which is back in six oh seven, and so again as history as a precedent it it does give us a bit of pause around than a little bit of heartburn around. Okay, what does that mean
when they do come with these cuts. But we do think September and December the most likely, and any sort of tailwind will come from the FMC having more data to support that in terms of with PCE later this week, with jobless claims continuing to rise and a broadly slowing economy may give them a little bit more ammunition to be able to do both of those.
So when you say you think that credit markets can perform, you know through the rest of the year, Ellen, what do you mean by that? You're talking about much more total return or you think tighter spreads on what are we talking about here?
More on the total return basis, because it would be hard for Press for them to get tighter spreads. I mean when you look at it on a twenty five years basis, average investment grades spread around one hundred and fifty bases points and we're at ninety more or less.
So it's hard for us to envisionous getting back much lower, and same with high yield when you have a long term average of over five twenty on twenty five years and we're closer to three three ten right again, So we think it really is about total return, and I mean the benefit you have there too is just across
the board. Is assuming we do get rate cuts this year and we do see rates coming down a little bit, on a total return base, we should see some in terms of just pricing where it is today and yields where they are, we should see benefit in portfolios.
Does does that mean that we continue on this kind of low single digits track for the full year for IGN high y I.
Think it does. It's not going to be a major rally. We're not going to see a big pickup, but compared to where it's been to your point at the outset, it has been a pretty mediocre. Here are certainly in comparison to equities.
You noted the spread levels. So we actually had the head of a US highield strategy from b of A on a couple months ago, and he was sort of highlighting half of the high old market trading inside of two outer basis points, which is typically levels reserved for investment grade which you know, it could reflect maybe anticipated upgrades, but it could also be sort of investors or bond holders looking to position themselves from face or in safer
names given the current interest rate environment or potential for economic volatility. So you know, with that dynamic in mind, how do you view spreads being this tight? And with that, what are some of the maybe core over or underweights that you guys have at this point for maybe the back half of twenty four and into next.
Year certainly, So I think as you note there's those spreads are incredibly tight for the highest quality names, and I'd say we're bunched up with those folks as well, just in terms of we don't think you're really being paid to take on an order amount of risk out because there's not enough juice in it and the squeeze for you for you to do that. And so we've really tried to stay stay one higher quality and shorter
duration and relate to those names. And I think as you think about the end of this year, so five plus months that we have left and into twenty five, I think we would look for an opportunity with any volatility to try to pick up maybe some of those some of the higher quality names. If we do see just a general weakness and the credit markets, we're not expecting that, but that would be a nice and pleasant surprise we could get a little bit of that in
terms of being able to pick up something. And then to that end, I think what we've seen is we've been in our core strategies. We've been overweight credit, higher quality credit, which has been allowed us to pick up a little bit of yield there without taking on undue risk. We haven't really wanted to chase on duration on either
side either. We just were trying to stay pretty pretty conservative as the way I would describe it thus far, okay, and through the end of next year, through the end of this year and beginning of next year, I think that's gonna be the right spot.
That quality trade though, and I mean everyone wants quality, and particularly on the high yield side. You know, double b's is a very very crowded trade. Is it not just getting you know, expensive in terms of you know what conversation you're actually getting for the risk of downgrade or you know, worse things happening.
Now, that's a good point. I think we we challenge one another is around that of is it. Are we taking on more risk or undue risk by chasing quality? But when you think about what the alternative is and what pickup we may be able to receive for extending out a little bit more, it just hasn't hasn't seemed
worth it to us. And I think the one big question mark for us would be do we see do we see default rates pick up even more so than they have so now let's say four to seven versus you know, long term average culture to four to one. Do we see those picking up? And if so, and what areas that might be presenting some opportunities. We're not there yet, though, And I think that's the thing is we've we're sitting on the sidelines waiting. We feel like this is the best place to wait until we can
pick some of that up. But it hasn't come.
And we've been waiting a long time for those defaults to come. And you know, really it seems potentially that there's an offramp for some of these companies. You know, if rates do come down relatively quickly, and you know, the liquidity returns to the market, and you know, the economy, soft lending, you know, all that stuff seems to be potential, you know, exit for those companies that were struggling. Why should we expect defaults to increase at this point.
Well, I think there's just the reality of the lower quality names that while they have not reached that point yet, they're in close proximity in terms of a slowdown and from an economic perspective, and I think those names so if you think about using the equity comparable, you look at the small cap indices, and you look at the say the Russell two thousand, which over fifty percent of those names are non earners right now. They're actually unp offitable.
There's a lot of names in that sort of realm that could be on the tipping point, particularly in light of when they have to refinance their debt and they just they're having to kick the can and make a shift. Again, that doesn't impact the higher quality names. In fact, some cases, that's going to push probably even more money into quality because people want to get as far away as they can't unless they're going to start picking it up, and
they see more opportunity there. So again I think that's the nexus of it for us is around we don't think we're at a tipping point yet, but I think that's what we're watching more than anything else.
Are there any sectors in those small caps you're particularly worried about when we talked a bit about consumer names and real estate in previous shows, Are they areas of stress that you see we do?
And I think on the consumer side, those that are most exposed to the lower income consumer in the United States are going to be particularly hurt by that because as you've seen the spending levels, the discretionary spending with low income consumers the United States is really pulled back because they have been most impacted by higher it's higher fuel prices and higher food prices, and so those are the names we would skew away from as we look
into the consumer we would be more on the staple side, which we think you have a little more opportunity there or again this concept of higher quality. But even in the retailers, where we haven't seen as much of a pullback in that spending and they're more targeted to the higher to middle income consumer in the United States, that seems to be a more conservative bet on that versus the low income consumer side that is being materially impacted right now.
Right were just to play devil's advocate a little bit. I mean, some people do say that we've seen all the defaults in those sectors already because we've been through that very tough you know, COVID and post COVID period and rates have gone up and they've pushed all of that stuff into bankruptcy or into default. So is there really any left to do?
I think there's still some out there. Unfortunately. I think there's still a little bit of a little bit of space there, primarily because what we've seen is down to the consumer level, they have been able to push things out, whether that be buy now, pay later, whether they have been able to put more on their cards. They've been able to extend it out a bit, and so it hasn't really flown through in terms of the impact on the balance sheets of these companies. But I think it
will eventually get there. But what you see is this stark contrast, you know, the best of times the worst of times of those who've been able to manage through that at the corporate level. When you look at the walmarts, the costcos on the retailer side, even on a home deepont of loads that have been able to manage through that and continue to prosper through it versus those on the low income retailer side that if not that are already struggling there.
So it's sort of in that same vein. If if there's a view that there's gonna be economic weakness and that the FED cutting rates in response to that, it seems, you know, logical that you'd sort of be positioning to invest in sectors or names with high barriers to entry wide economic modes. So credits with you know, very defensive characteristics, which I would think means posturing or having a bias
more up rather than down in credit quality. So how far down the spectrum or you know, what rating wrongs are you guys comfortable being invested at if we have potential cuts from the FED and it's just not they're not able to sort of get that soft landing that many are sort of pricing in.
Yeah, we've definitely skewed to the higher quality credits there. Again, in terms of how far are we going down, we're sticking on the investment grade side of things, and like so if you think about our total portfolio and our plus strategies that we manage, we have up to twenty percent that can be allocated on non investigrade, and we're down at the low end of that range, down closer to these seven eight percent range on that. So we've really we've really pulled back, you know, in terms of
where we are. Our view has been that we're not picking up the commensurate amount of return outside of that to make it work. And so when you think of even those names, if you your point on those names that have the ability to weather through that, whether that be on the industrial side, when you think about the names like the Honeywells of this world, when you think about even on the consumer staple side, on the beverage
side of the coach, the Pepsi's that kind of name. Again, you're not picking up much in terms of spread there, but we think that they're well positioned through that slowdown.
And so that's what uns this idea that in the event that we do start to see a bit of a dislocation and or we just see what we would describe as instead of a grind down in the economic output so far, if it were to have more that wily coyote type of moment, you could then we'd be well positioned to be able to pivot a bit on some of those names, and we just hasn't been worth it to chase it this far.
Yeah, I mean, we had Larry Colpon, who's the CEO of g Aerospace, on Bloomberg TV this morning highlighting, you know, some of his expectations for a rising defense betting here in abroad given the elevated threat environments? Is that part of your irrationale behind positive views for maybe certain sectors.
Does that include industrials, does it include actual defense guys and you know, do you sort of share that view and does you know that change it all depending on who may or may not be in the White House a year end.
Well, we do. I mean, we think that the industrial side is going to do well, and we think that that can do well, whether it regardless of which administration
comes in and next January. But the reality is that within those and this within those, the industries associated with right now owning more defense right now we think is a positive because we think that broadly speaking, regardless of which side of the aisle you're on, that based on what is going on with Ukraine, what's going on in Gaza, and the continued tensions with China, that overall we will be spending more in that domain as well as other
countries will be spending more in that domain. So that works. But then picking up some more on the industrial side as it relates to the infrastructure spin that is likely to occur as we go into twenty five. I think it's going to be more about where that infrastructure spind goes than if it happens at all. I don't think
either party shown a real desire or proclivity to cut spending. Yeah, so I think it's just a more matter of which within each of those on the industry side, which you can pick up on, but I think that continues to do well so.
Within the industrial space, or you know, maybe even like utilities, are there any sort of single name credits that you have sort of a high conviction in that could be positioned outperform and conversely maybe some names where you think that the upside downside is maybe skewed not as favorable.
Yeah, so I would say one, you know, names like Honeywell, Lockheed Martin or names that we have owned, do own and feel good about because think they can both in terms of from the industrial side and then from the defense side. On the Lockheed side, less so on the names we've really been shining away from in terms of how we're running the portfolio. You know, we don't have long We are long only, and so we don't have anything that really other than quote unquote shortening against the index.
But we're not actually taking on a negative view other than that. And so I think it's the way we've positioned it thus far is to try to be over allocated within industrials and then those credits within defense with the broadly industrial like the Honeywell has more of a broad multi business industrial for sure, industrial and multinational type
of opportunities. And I think that's the thing too. We don't want to be as laser focused on any a really narrow interest in those because we think it's broad. The spending is going to be broad and it can lift all boats.
And on the utility side, I mean, those bards tend to be much longer duration. They obviously got whacked by rates rising. Is there a sort of technical reason to buy those just because they got cheap on a surprise basis?
I think there is. I mean I think that we like the overall view on the utilities as it relates to not just this end we've seen on the AI side, which has impacted many of them, but really the long term infrastructure type of play with these utilities, specifically those names as you see across the Sun Belt in the United States, of the continued growth in population and demographic shift into those areas, and the ability to generate or turn off of those not just on the consumer side
as you've seen that population growth, but also from a from broader commercial side, as you've seen more companies moving to those areas, they're able to pick up new user you know, commercial and consumer type of clients. So that's been a net positive for them and for their ability to generate returns off of them.
So I just to jump back in you kind of mentioned earlier, you know, if we get some event happening that's leading to some some spread widening and maybe some opportunities to jump in, can you maybe highlight you know, what are some of those levels that you're looking at where it's like, Okay, maybe the negativity has sort of gone too far and we like this as an entry point. We've signaled some levels of complacency going on right now. So where where does the complacency go away?
For you?
Well, if you had told me ten years ago that I would be saying that, you know, anywhere over one twenty one thirty investment grade would be intriguing to me because wow, that we've seen a nice wine that's tight, and yet that's the one thing that you almost you're suspending belief on something. And I think that's one of the challenges we faced. We've been doing this for a
long time. As we think about the old adage from Mark Twain, if history doesn't repeat itself, but it rhymes, Yeah, we keep coming back to it, and that's what we would like to see it, you know, well above you know, the one twenty one thirty on investment grade getting closer just to the long term average for that to be intriguing in a perfect world and maybe be careful what
you wish for we get above that. But the sort of decisive exogenoush factor they would have to create that, because it's not just the FED coming to table and saying we're not going to do cuts in September or we're not going to cut into Simber. We don't think that drives the level of widening. It would have to be something much more material in our view, and so that's what we keep watching around Okay, what else could
that really be? You know, I mean, so it's like the whole scenario analysis around what those may be and do. There's not any one thing right now that we would point to to say, Okay, this is what is really going to drive that higher. It have to be a multitude of factors as it relates to those.
It seems like though, from what you were saying earlier on that there is a big demand element here, just this endless wall of cash pushing against a limited supply. We're seeing it from you know, not just dedicated credit buyers, but also crossover buyers and also non US buyers. Everyone's piling and then you've got this sort of redemptions and maturities and so you've got this all those cash that
needs to be recycled. Is there anything that you can see that might weaken the demand side of the argument?
Well, I think one point you brought up there is a particular interest to us, and that's on the international buyers because there has been such a thirst for US yield and we've can you to see that it's been pretty consistent. So the question we have is as it relates to through the election and into twenty five of broader policy and what that may or may not do in terms of some of those buyers. Those buyers don't want to be punished for it. So they already own
a significant amount of credit. So that's not as though they are going to in our view at least widely leave and flood and flood the space with a lot of with a lot of product. But are they going to be the net new buyer? And I think that's to your good question. I think it's around will they continue to be the net new buyer in an environment
where policy is more strict of him. When you have a policy that relates to geopolitic geopolitical policy, tarifs and other things that may create consternation, you could see them being net less interested. So that's one category of capital that may be coming out. And then as it relates to within within the US of just okay, how much how much thirst is there? How much you know? And
the funds that are out there right now. The only thing that gives us a bit of a silver lining there is the amount that's in cash right now that is looking for a home. I mean, you look at the data supporting that at the amount of cash money market funds and institutional cash, it is significant that could be deployed, and so I think that is the one counterbalance to some of the international component of those, but.
That also leads I mean, when there's such excess demand for limited spy, you also get a lot of froth. So is there any kind of concern there that you're seeing, you know that you're seeing. I mean, we're always looking for things like more pick deals, more dividend deals, more of those sorts of very very speculative fundraisings. Is there anything that you're seeing right now that would worry you?
I think the thing that gives us a bit of pause is less so on the cross markets than the idea on the private credit side and just what's been going on there and the amount of money that is there and our inability to get a really good look into that to determine how what the net impact would be if that money away, and how much how much that would impact the broader market, because I do think we've seen such a a wall of capital that has been moved into private capital in terms of the deals
that they're doing, and just what is that, what's the net takeaway from that.
Yeah, yeah, I mean it's certainly taken some supply out so that as technically it's had some impacts on pricing of public markets, but definitely an interesting one to watch. I just wanted to also ask you about some other credit I mean, there's there's so many, it's a it's a big broad universe. But beyond bonds, what about loans?
You know, they've they've done very well. There's potentially some kind of cracks appearing in the thesis around you know, floating rate because rates are coming down, maybe that's not as compelling as it was. And then you've got a lot of people buying clos securitized credit. What what else are you looking at in terms of other parts of credit markets.
Yeah, so we've been we really have not jumped into the foray on the COLO side ever since just has not been intrigued to us, but more because we haven't felt like, as long term buyers as much that there's been an opportunity set there, and so we've just said, you know, we'd rather just wait. That is one area where because of the sheer demand that we have seen in recent years, we just didn't feel compelled to have to chase after it. We just didn't think that that
was worthy of of allocated additional capital on it. So I think that's one area where we've where we've remained restrained, if you will. But I think as we as we look out over the coming six to twelve months, it would be intriguing to see if we do see again, not a base case, but it broad a broad slow down if things just pick up steam. We have some challenges where there could be an opportunity set for us. We haven't. We haven't waded into it, but it would
be of interest later on. And those would be almost when you think about you're sitting upon the terminal and you're watching the thing, the things that could become the opportunities that they haven't reached that level yet, but would be intriguing at that at that point.
Okay, other parts of a B S. Are you looking at consumer abs or any of the other I mean, we've seen a lot of whole business All that stuff is that of interest at the moment people think that there's value there, So I'm wondering if you're seeing the same.
Yeah, you know, it's interesting you talk about the on the consumer ARABS side and we have not been as interested there only because we felt like there's there's a reason that it's been undervalued, and you know what was the all that is that you could it could remain undervalue longer than you can remain solvent, right and uh.
And so I think that's been one where we just in this and it's reflected in the comments earlier just about the consumer in the United States as well and specifically those who are having to wait into that we'd rather step away from that. So so we have so our exposure that has been you know, below the index and below our you know, our normal allocations there because we haven't felt like is we're getting paid for the inherent risk, right right?
And I'm guessing you'd probably say the same about commercial
real estate and all that stuff. But I would like to ask, you know, what, what risks do you think there are of like commercial real estate becoming a bigger problem, because you know, it's it's often spoken about, it's often talked about as something that could take down hundreds of banks in the US and be very very problematic, and yet we you know, it just seems to be you know, bubbling under the surface, and it hasn't really blown up, and people I think, you know, there are deals going on,
their assets being brought their investors, they're picking up, but it's not blowing up. Are you worried about commercial real estate at all?
We are, and we're worried about it from a slightly different point of view, which is one of it's it's
less so for the banks. Would you think there's some mediosyncratic risk there for certain banks who are overexposed, and we've seen some of that over the last six months nine months, But broadly speaking, the ones who are going to be the most penalized by it in this in this marked to market and the quick dash to mark down values will be the private funds who have who have put a lot of money into these and have been unwilling to really mark these to market or unwilling
to depends on what your point of view, so dadd you say, it all depends on whose bulls being gored, But it really is about when they have to start marketing those down and the investors associated with that, which are the large institutional investors and some of these funds that are going to start to get hit by that. That becomes a real challenge for them, but we don't
think it's a systemic risk. Across the financial services industry and specifically in banking, it will hit a couple of smaller entities who have really over allocated to that sector and industry. I think it also will very much it is aligned with the region of the country and the world that you're in as associated with that, because I think the marks you're going to get in certain parts of the US that have continued to struggle from a growth perspective will look very different than some of the
growth areas where they haven't built up as much. And there's probably a trade that can happen closer to the mark than in other areas.
But it's not one that you're actively looking into at the moment.
No, we're not. I think we would just have to see a much larger shift there. Again, we would have to see more owners mark down their properties that we just have not seen yet. It's just I think those could prevent some real opportunities for some of the own you know, some of the larger commercial real estate credits out there, but that's just not there yet. So opportunity but not the big not the complete systemic risk that I think some would consider okay.
I mean, obviously we're right in the middle of the US election here, and things are changing by the minutes and will probably be different by the time we put this thing out. But I did want to ask you about the Trump trade. You know there are there is a lot of talk that you know, well, obviously trade is like volatility, and they like trading different narratives. Things are changing, so that's that's an opportunity to do something.
But is there a big Trump trade in your view in terms of credit markets.
I think it's really the influence of events when you think of the Trump trade, if you will, last two weeks, which has been as he's received the nomination at the Republican National Convention, a lot of the noises associated with President Biden and as that was coming on. But then you in the same lockstep, you had the FOMC, the fact that inflation looked to continue to come down, you saw jobless claims picking up, you saw the unemployment picking up. So I think it was not just that it wouldn't
all be allocated to the Trump trade. There are those other items that were really given that tailwind credit markets and people saying okay, convergence of those would say, you know, the likelihood has certainly risen from the Trump perspective in terms of presidency, the likelihood of the FOMC doing something in the next five months high or at least as high as it had been. So again, those things have have factored in.
The economists is saying that, you know, at least what has been verbalized from the Trump camp would be very inflationary if it was to he be enacted as policy, in which case you presume you want to buy low duration and leverage loans and all that stuff. But do you fear a renewal of, you know, a resumption in inflation if there is a big GOP suite in the November election.
Yeah. Our base case isn't that we see a real pick up in inflation, more so that it's just going to continue to remain higher than the Fed would like. We just you know, we look at it as inflation took the elevator up. Now it's taking the escalator down, and it's almost like the slow escalator grinding lower because it's just not getting back to that two percent target
anytime in the in your future. And nothing about the policies, at least as presented from either side right now would lead me to believe that that is going to change, that there's going to be a pickup. And even as we talk about this, you think of people talk about inflation coming down, the expectation still that it is rising at above average. It's still going you know, it hasn't gone back to where it was. You said that, you know the fantasyad is of pre pre COVID. We're still
not going back to those levels. It's just not rising as fast as it did before. And I think that's where we struggle with seeing an environment that it will.
So in terms of opportunity, when you look around all of the stuff you get to look at every day, not just in the US, is there something you particularly put your finger on now as an opportunities Is there something that you know of trade that you have very high conviction in that maybe others are missing.
Well. I think as we think about it, there's this what did Voltaire say? Doubt is an unpleasant condition, but certainty is absurd. I think we don't feel real certain about any of the trades right now, other than what we've discussed before around a higher quality trade and waiting a bit until we get to see a bit more unearthed over the next six months. I think that's going to be the opportunity set and being able to have ready capital to deploy going into that because aren't that
many fat pitches out there. There aren't many things where you'd say, wow, spreads are in dodibly wide. We have a real dislocation and we're willing to put money at really cheap levels. I mean, there are a few here and there, but even to the discussion earlier about the consumer, even on the ABS side, we would argue they're cheap for a reason, and so it doesn't it doesn't make
us compelled to go out and chase that trade. We'd rather wait, be a bit more conservative on it, and then hopefully let some things come to us over the next six months and have enough capital be able gott and deploy that and not get hit as much as
some others before we put that to work. And I think that's part of this too, where we haven't chased some of these deals even I mean, you look at the coverage on some of the deals that have come to market over the last month, let's say, and it's just the sheer amount of capital that's out there, but you know, just.
I mean, the Bowing deal was like eight to ten times over subscribed. It's incredible, and.
It just has to scratch in our head when you get the numbers back, you say, if we say that one more time, what did you do? The coverages on that one was the over subscription? And so I think that's where we'd rather be patient.
Is that some way you think you particularly have an edge right now?
It's interesting. I think it actually lies in that willingness to be patient and be more long term, because I think there's so many folks around us that get caught up in the whims and vagaries of the market. They just feel they have to get they have to put some money to work, and they have to try to pick up at the margin a little bit more yield
to get that return. We're willing to wait, you know, and so in the short run that can be a little more punitive to returns because obviously you're you're not chasing it, so you're not going to see that in the short run. But over the long run, we think it's it's the most prudent course, and and with that you sort of get that, you know, the ben gram adage of the weighing machine rather than the voting machine. You know, we think people are chasing a lot of
stuff right now. We think you better served to wait it out a little bit. Doesn't mean being out of the market. It just means skewing to be more conservative within it.
And is that the best hedge against any potential volatility that could come down.
We think so. And I think that's the one thing we believe is that volatility will pick up. It's just a matter of when, not if. And I think, as we've talked about in the past, this idea of how did you go broke gradually and then suddenly and it comes so quickly it's almost what we saw of late with the I'm talking about the equity side of the
house with small caps. Small caps underperformed and unperformed until they didn't and then within a seven to day trading range those spiked and made up over a thousand basis points of return. I think that sort of thing that we'll see this volatility pick up, and being well positioned and more conservative will allow us to then put money to work rather than having to retrench or be on the side of a while. Now I've got is jettison
some names to try to make room. I think we're actually in really good shape.
What's the one thing you worry about most in terms of what might spark that volatility?
I think it's the confluence of geopolitical issues that seemed to be even more not dire, but certainly more present than almost at any other time, and the interrelated nature of them, and the fact that I think markets are
more global than they have ever been. And regardless of how folks may feel about that path going forward, you wake up in the morning in any given day and they're a host of things to be going and I think those are the things that can bring shocks, and those shocks can then force people's hands again and this idea that they suddenly don't have the hedge that they thought they meaning to jettison things, and it creates that spiral. And that spiral is twenty four to seven globally in
terms of what that can do. And I think we saw that to a certain extent back in the in the spring, in the financial crisis, in a few areas, in certain banks. You know, again, it just it happened so rapidly that if you had told me that twenty years ago, that you could see that shift that I would have said, oh there's it's not possible, not physically possible, and yet that's where we were.
Great stuff, and I'm mcnight, Chief Investment Officer at Regions Bank. It's been a pleasure having you on the Credit Edge. Minny.
Thanks, thanks so much for having me today, and.
Of course we're very grateful to Matt Goiitner from Bloomberg Intelligence. Thank you for joining us again.
Matt, thanks everyone appreciate it.
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