Don’t Wait For Another Wave – Why Covid-Sector Credit Opportunities Remain Attractive Today

GMO
By December 22, 2020 08:04

Don’t Wait For Another Wave – Why Covid-Sector Credit Opportunities Remain Attractive Today

Fantastic vaccine news and a post-election relief rally has left many credit investors asking, “Is there any opportunity left from here?” We believe the answer is yes. The ink spilled in the marketplace about record low yields due to record low rates overlooks the significant dislocation that remains in COVIDimpacted sectors.1 The broader credit market opportunity we referenced in papers earlier this year2 has largely played out, but many COVID-impacted businesses are still trading at levels offering attractive total return to normalization and face cyclical, rather than secular, challenges. These sectors account for only 25% of the high yield market but account for most of the spread widening on the year, despite maintaining meaningful equity market caps. For some of these businesses, enterprise values have recovered fully from pre-COVID levels, despite optically large equity share price declines. Meanwhile, the credit spreads of many of these businesses are still wider on the year, and we believe continues to present a good opportunity to capture excess return in credit.

GMO
By December 22, 2020 08:04

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