Robert Cohen, Director of DoubleLine’s Global Developed Credit team, comes on The Sherman Show to share his views across corporate credit: the investment-grade and high-yield bonds and leveraged loans. As he tells hosts Jeffrey Sherman and Samuel Lau (1:50), “Asset classes that had long duration suffered damage in 2022. I feel like that was in the beginning of the year, and we’re in a point now where there’s a handing-off of the baton from worrying about rates and how hawkish the Fed’s going to be – to now starting to be where are we going with growth.” As in 2020, Mr. Cohen expects (6:56) dispersion in credit performance in 2022. He foresees winners and losers, as growth slows amid rising inflation and outright shortages of goods and workers raising operational costs while rising interest rates raise financing costs. Cyclical companies and companies dependent on raw materials without the pricing power to pass along costs are at risk of becoming losers. For winning credits, he looks to energy and other commodity producers and tech companies with growing earnings and cash flows from the licensing of mission-critical software and other technologies to customers. This edition of The Sherman Show was recorded April 5, 2022.
If the broad economy slows as Mr. Cohen anticipates, he says top- and bottom-line growth will differentiate between performing and deteriorating credits (11:00) as that will be needed to keep pace with rising operational and financing costs. On the positive side (16:00), many corporations will not face the need to pay off or rollover debt principal for some time to come. “Every company that could refinance has,” Mr. Cohen says. “So, we’re probably looking at around five years or so, to generalize across the markets, before you get a really big step-up in maturities.” In terms of sector allocations within corporate credit (20:50), he gives his reasons for “migrating from the greatest risk-on inflationary trade to something more moderate,” with greater weightings toward investment grade versus high yield and toward defensive versus cyclicals. Mr. Cohen also shares his views on the relationship between corporate earnings and credit markets (25:49) and the signals he uses to spot changes in the condition of corporate credit and default risk.
The views and opinions expressed herein are as of the date recorded and should not be construed as an offer to buy or sell any securities. Such views/opinions may differ from those of DoubleLine Capital or other of its affiliates and are subject to change without notice. DoubleLine has no obligation to provide any updates or changes. The following audio presentations represent DoubleLine’s intellectual property. No portion of these presentations may be published, reproduced, transmitted or rebroadcast in any media in any form without the express written permission of DoubleLine. DoubleLine has no obligation to provide any updates or changes. To receive permission from DoubleLine please contact [email protected].
Neither DoubleLine nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.
DoubleLine is not providing any financial, economic, legal, accounting or tax advice in these podcasts. The receipt of these podcasts by any listener is not to be taken as constituting the giving of investment advice by any DoubleLine entity or individual to that listener, nor to constitute such person a client of any DoubleLine entity. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.