1Q18 FIXED INCOME OUTLOOK - Context

LOOKING BACK ON 2017

Despite yields going up, in a large portion of the market - which is supposed to be the end of fixed income - you had strongly positive returns in most areas of the fixed income markets. A little more moderate on some of the government securities, but credit securities in general did very, very well. Interestingly, most markets outside of traditional US high yield, outside of the United States did better than inside the US. Again, something that we like to emphasize, that’s why you want to be multi-sector and global in building income portfolios.

THE 2018 PLAYBOOK

Sitting here early in 2018, when I reflect back and think about if I would’ve known all the events of the past couple of years, starting with the Brexit vote to the US election to some of the turmoil in emerging markets, I would’ve never guessed that credit markets would’ve been as resilient as they have been. But I think what it teaches us once again is the power of time. It is very expensive to not be invested in the markets, and through all the volatility, the instruments we invest in are mathematical. Either we get our money back, or we don’t get our money back. We call it a default. If we can continue to minimize the defaults, then holders of our funds are just going to benefit over time. So what’s the playbook for 2018? Very similar to 2017. Be diversified. Don’t try and hit homeruns. Wait for whatever dislocation might be there. Will we get the same result as 2017? Maybe not, but it’s the right approach until we actually start to see volatility in markets.