Investors may need to lower their return expectations in the wake of Brexit, and eye investments in US corporate credit in the hunt for yield, according to investment management firm, Eaton Vance Management.
In its quarterly report, it noted that Brexit shockwaves had added additional political and economic uncertainty that would fundamentally impact investors for some time.
“Even just before Brexit, both the US Federal Reserve and the market had ratcheted down expectations for rate hikes,” it said.
The July report said investors should lower their return expectations across asset classes, and if they hunted yield, to consider sectors isolated from the UK, such as US corporate credit.
Eaton Vance Management chief income investment officer, Payson F. Swaffield, said: “[Those investments] could be very attractive in an environment of extended support by central banks”.
Below investment grade US corporate credit, high-yield bonds and floating-rate loans offered a compelling risk/return proposition, the report said.
“Their high coupons should more than offset possible credit losses,” it said.
In addition, if there was a sharp sell-off in any of those sectors, or in a specific security that was insulated from the direct impact of Brexit, it posed as an even more attractive buying opportunity, Eaton Vance said.
