Opportunities in the Global Credit Markets

Overall, we continue to remain positive on credit and have kept our overweight to value as these names tend to do well in environments where growth is positive but slowing.

We are cautiously embracing credit risk. We're cautious because we have a lot of policy uncertainty around the pending tariffs in the US and how that will ultimately impact growth in the US and globally. However, we believe this is a man-made concern for now, and we have not seen a pickup in defaults or delinquencies in a major way, which could tell us that this is something deeper if we start to see those things. It comes down to the hard data for us though, and that is how we think the Fed is going to react, looking forward into the data, into the coming months.

We still like US credit risk because we have a US economy, which has a rather solid credit sector with a healthy balance sheet and banks that are well-capitalized. The consumer is similar. While we could see consumer spending moderate a bit, the consumer is well-supported by manageable debt levels, moderate wage pressures and savings.

Globally, we like areas of the world that are ramping up their fiscal spending package. We believe Canada, Europe, and Asia growth will all benefit over the long term from these fiscal packages. Of course, we'll continue to watch key developments across the globe on the tariff front, but we believe that these fiscal packages are going to be longer-term trends for global credit markets.

Our top-down macroeconomic views drive the overall allocation to each bucket. Our view is that growth may slow, but will stay positive and supportive for credit overall. We believe corporate and consumer balance sheets are in a solid position to withstand some slowing. We recognize that we could be coming down out of the peak part of the cycle into a period of slower trend growth, so we have increased our defensive exposure slightly. This reflects that cautious part of the cautiously embracing risk, but overall, we continue to remain positive on credit and have kept our overweight to value as these names tend to do well in environments where growth is positive but slowing.

Lastly, we are neutral and carry names. We continue to like high yield, which typically outperforms equities in periods of below-trend growth. Globally, we have added to Australian and European credits, particularly as the opportunities arose in the recent spread widening.