Neuberger Berman also expects increased volatility in market prices and market sentiment for the rest of the year. (Image: Shutterstock.com/Zakharchuk)
In the outlook for the financial markets in the second half of the year, Neuberger Berman continues to expect a phase of increased volatility in an inflationary environment. This is why the American asset manager has increasingly invested in floating-rate loans in the fixed-income segment.
Neuberger Berman currently still assumes that inflation will decline from its high level this year and level off in comparable values at the upper end of the range after the financial crisis.“We’re seeing increased volatility in market prices and market sentiment due to increased tension in central bank communications. The rest of the year will likely follow this pattern,” said Joseph Amato, President & CIO Equities at Neuberger Berman. With new data and messages from Fed members, there were always new forecasts. Amato sees opportunities to increase the portfolio risk during this phase of increased volatility.
The search for returns
Because of concerns about inflation and rising interest rates, Neuberger Berman has invested more in variable-rate loans. “They offer relatively high returns given their capital primacy, very short maturity, and inflation hedge. In addition, the strong demand from retail investors gives them technical support,” said Brad Tank, CIO Fixed Income.
Flexibility in the search for long-term relative value and short-term tactical deals across the entire spectrum of the credit markets has so far been an important factor for additional return opportunities in an environment of rapidly rising government bond yields and narrowing spreads. This is likely to continue as long as investors rely on central banks to be willing to cap investment-grade yields, Tank said.
Private equity: focus on growth prospects
In the private equity asset class, Neuberger Berman observes that the corona crisis has accelerated the trend in private equity in favor of companies with robust growth prospects and actionable plans for value creation. “In the current high valuation environment, private equity managers seem focused on operating business improvement,” said Anthony Tutrone, global head of alternatives.
It’s noteworthy that, according to Pitchbook data, only 12% of private equity sales were to other private equity firms in the first quarter of 2021 – up from 48% for all of last year and a long-term average of 41%. This is presumably due to the fact that the companies are already fully rated and have little scope for further operational improvements. “Contrary to this thinking, we would argue that these carefully aligned and well-run companies are perfect for strategic corporate acquisitions and the public markets,” says Tutrone.
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