Conning Sees Opportunities in Credit Despite Cycle’s Move into “Repair” Stage
June 05, 2020
COVID-19 Assists Push into Next Credit Phase; Disciplined Analysis Key to Identifying Value as Spreads Widen, Downgrades Increase
HARTFORD, CT – June 5, 2020 –Leading global investment management firm Conning said that there are credit opportunities amid the market dislocation from the COVID-19 pandemic. While a series of credit profile deteriorations, ratings downgrades and spread-widening are expected, Conning is also identifying opportunities in high-quality investment-grade corporate issuers with durable balance sheets and noted that disciplined analysis can help uncover the leading candidates.
The Conning Viewpoint A Search for Credit Opportunities Amid Downgrades and Fallen Angels examines how the COVID-19 pandemic struck fast and deep in credit markets, leading to a significant number of downgrades and record new issuance by investment grade (IG) firms. New debt and the expected lower earnings will likely weaken credit ratings, and IG issuers rated BBB – about half of the Bloomberg Barclays Investment Grade Index – face the risk of being downgraded to high yield.
“Conning believes that the U.S. had been in the late stages of the credit cycle – i.e., the ‘Reach’ phase – since 2013, and the COVID-19 pandemic has pushed us into the ‘Decline’ phase,’ said Matt Daly, report author and Head of Conning’s Corporate and Municipal teams. “However, many investment-grade issuer management teams have already begun taking prudent actions to defend credit profiles, including eliminating share repurchases, curbing dividends and reducing expenses and capital spend.”
Daly added that the industries in which Conning sees opportunities include aerospace/defense, retail and property and casualty insurers, and that strong fundamental analysis can help identify these sector opportunities and specific names within sectors.
Conning (www.conning.com) is a leading investment management firm with approximately $168 billion in global assets under management as of March 31, 2020.* With a long history of serving the insurance industry, Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.
*As of March 31, 2020, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited, Cathay Securities Investment Trust Co., Ltd. (“SITE”) and Global Evolution Fondsmæglerselskab A/S and its group of companies (the “Global Evolution Companies”). The Global Evolution Companies are affiliates of Conning. SITE reports internally into Conning Asia Pacific Limited, but is a separate legal entity under Cathay Financial Holding Co., Ltd. which is the ultimate controlling parent of all Conning controlled entities.
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