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Global Value and Income Dispatch

Beware of the liquidity illusion in the quest for higher yields.

  • Lale Topcuoglu
24 Jan 2019
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View PDF   Download PDF  

When our team is on the road, the most common question is “where are the risks building in this cycle?” Much has been written about the explosive growth in leveraged loans, as well as rising corporate leverage coupled with the lack of covenants (i.e. covenant-lite loans) that are supposed to protect investors’ claim value. In our view, while loosening lending standards are concerning, they are unlikely to create a systemic risk.

We believe the key risk instead lies in products that invest in less liquid assets that are leveraged and/or packaged into vehicles that offer either monthly or quarterly liquidity; hence, a “liquidity illusion”.

Disclaimer

Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and you may not get back your original investment. The information contained herein including any expression of opinion is for information purposes only and is given on the understanding that it is not a recommendation. The Fund’s objective is to offer regular income generation consistent with long-term capital growth. The annual management charge is deducted from the capital of the Fund. This will increase the income from the Fund but may constrain or erode potential capital growth. Telephone calls may be recorded. Issued and approved in the UK by J O Hambro Capital Management Limited which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No: 2176004. Registered address: Level 3, 1 St James’s Market, London SW1Y 4AH, United Kingdom.The registered mark J O Hambro® is owned by Barnham Broom Holdings Limited and is used under licence. JOHCM® is a registered trademark of J O Hambro Capital Management Limited.

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