Martin Ward, senior investment research analyst, Square Mile

Following two years of strong returns for global high-yield bond markets, investors like us are questioning whether this momentum can continue. On the one hand, credit spreads are tight, reflecting more expensive valuations. This limits the potential for further capital appreciation and makes the asset class vulnerable to spreads widening if we see bouts of volatility in 2025. Such volatility is plausible given ongoing uncertainties around global growth, the trajectory of interest rates, inflation and geopolitics.

However, one could argue that corporate fundamentals broadly appear robust and that there is a solid technical backdrop supporting the market. Additionally, starting all-in yields are attractive, offering strong income potential for clients. This income should also act as a buffer for returns if elevated levels of volatility arise from credit spread movements.

Managers are also observing increasing dispersion across the high-yield market, particularly between higher-quality companies and those with more stretched balance sheets. This underscores the importance of precise bottom-up credit selection in 2025 to mitigate the risk of capital erosion.

Our preferred choice in this space is the Aegon High Yield Bond fund, which currently has a bias toward higher-quality companies while being positioned to generate income and provide downside protection. Given the tight credit spreads and prevailing uncertainties, we believe this is a prudent approach. We also expect the managers to opportunistically capitalise on any volatility affecting corporate credit spreads. The distribution yield of 7.5% as at the end of 2024 is also a strong starting point, offering a high level of potential income.

At a headline level, we remain cautiously optimistic about returns in 2025, though they are unlikely to match the strength of 2024. Investors should prepare for potential credit spread volatility, with income expected to play a more significant role than capital appreciation in driving returns.

The portfolio manager’s view

Brent Olson and Thomas Ross, fixed income portfolio managers, Janus Henderson

High yield bonds motored along in 2024, benefiting from both their high income and a boost from credit spreads tightening, which had the effect of generating capital gains as it pulled yields lower. Recall that bond prices rise when yields fall and vice versa. We think 2025 should shape up to be another positive year for high yield, albeit with returns more likely to be driven by income as spread tightening fades and gives way to some widening.

With credit spreads towards the tight end of their range, it is becoming difficult for them to tighten much further.

Yields on high yields bonds are, however, close to the middle of where they have been trading over the past 20 years. With central banks likely to pursue further interest rate cuts in 2025, we think investors will continue to see attractions in high-yield bonds given average yields of 5.6% in Europe and 7.2% in the US.

There is some tension in the markets as we await the new Donald Trump administration and how quickly and to what extent policies are enacted. A difference to 2016 when Trump last became US president is that many high-yield bonds are trading below par value: on average 96 cents in the dollar. Much of this is a legacy effect from bonds being issued with coupons below today’s yields a few years ago. It does, however, offer a useful pull to par as the bond price rises as it gets closer to maturity.

Spreads are tight but it is not unusual for them to stay tight for long periods. This is because corporate conditions take time to change. Once they have been through a period of change they tend to settle at the extreme, ie spreads spike higher during a crisis and take some time to retreat while staying low during a period of economic stability.

The CIO’s view

Sebastiano Pirro, CIO, Algebris Investments

We suspect 2025 may be a tricky year for credit markets. In retrospect, 2022’s events created a one-off opportunity for the asset class. The combination of higher rates and wider spreads changed the yields’ landscape dramatically, and early buyers could lock in 9-12% all-in yield in high-yield markets.

Fast forward two years, and the trade has largely played out. In 2023, we saw a broad performance with quality bonds leading, and 2024 the final part of the credit cycle with high yield/low rated assets catching up and displaying strong performance – despite a mixed year for rates.

Post the big run, valuations are not compelling anymore, at least at asset class level. High-yield spreads are at five-year lows, and implied default rates are well below historical averages. Last year, there were few defaults and refinancing markets remained wide open, but the bar to outpace what is implicit in valuations is nonetheless high.

All-in yields remain high, thanks to the rates component. Carry is a double-edged sword, as it often attracts faster-moving capital at the end of the cycle, creating the potential for a fast exit should rates turn more volatile.

The search for carry is apparent in the recent outperformance of distressed indices: as investors look for yield, market dispersion has fallen fast.

Opportunities exist: in the subordinated corporate space, some issuers still pay 400-500 basis-point spreads, despite solid capital structures, particularly in financials and utilities. The real estate sector is also trading wide to index due to high interest rates. In telecommunications, some of the capital structure stands out as cheap. Other sectors are now trading too tight however, due to generalised spread tightening. For example, European autos are trading at all-time tight spreads despite falling revenues and slowly increasing leverage.

It will be difficult to make money in credit – and in high yield – by buying an index. But opportunities continue for the bond picker.

The wealth manager’s view

Will Dickson, CIO, P1 Investment Partners

High yield bonds performed well in 2024, as would be expected given rising equity markets, falling interest rates and robust economic growth in the US. However, credit spreads are now very tight, limiting the potential for further capital gains and increasing risks of weaker returns by widening spreads.

While narrow spreads can persist for prolonged periods (eg 2004-2007), sell-offs in the sector can be aggressive. Important to consider is that these periods of weakness for high-yield bonds often correlate with declines in equities. They are therefore not an attractive diversifier within a wider multi-asset portfolio.

With the prospect for capital gains limited, the potential return from these bonds is consequently capped at their current yield to maturity of around 6%. History suggests that the best returns from high-yield bonds come after periods of widening spreads, where running yields are higher and capital gains through spread tightening are more likely.

At the current time, the opportunity cost of waiting on the sidelines is low and the risk of short-term capital losses is correspondingly greater. Therefore, investors may find the defensiveness of better quality bonds, or the uncapped potential gains from equities more attractive options.

Within P1 portfolios, we retain limited exposure to high-yield bonds, preferring a barbell approach of better quality, shorter-dated fixed income – providing protection against market volatility –alongside an equity allocation skewed towards smaller companies – to benefit from rising risk assets.

This article first appeared in the January issue of Portfolio Adviser magazine

Last year, corporate bonds achieved stable returns and rocketed in popularity, following expectations of falling interest rates across most developed economies. As such, the asset class is entering 2025 at tighter spreads than markets have seen for some time, but also with more attractive yields as interest rates reached highs not seen in several years.

The performance of government bonds has been more volatile, according to industry commentators, and looks set to remain so. The election of Donald Trump as US president, combined with weaker economies across western Europe, means that while interest rate cuts are virtually inevitable, the timing and scale of them is relatively unknown.

Iain Buckle, head of UK fixed income at Aegon Asset Management, says: “We expect bond markets to remain volatile in 2025. The market currently expects a further 75 basis points of cuts from the US Federal Reserve over the next 12 months. The broader US economy still seems robust, however, and those 75 basis points of expected cuts could look optimistic if the labour market remains resilient.

“The political backdrop in the US will also drive volatility, given the market assumes a Trump presidency will lead to looser fiscal policy and higher inflation. We will learn more as he takes office, and the reality may not be what the market has implied. But it’s likely the style of his presidency will only add to the uncertainty and volatility in markets.”

David Knee, deputy CIO of fixed income at M&G Investments, agrees that Trump’s election will increase volatility across markets, as investors anticipate how his second administration pans out.

“The first Trump presidency showed what Trump said he would do and what he actually did was very different,” he reasons. “Bond markets will be watching for key policies such as tariffs, tax and immigration, which could potentially reignite inflation and limit the ability of the Fed to act, as well as add to already growing deficits.”

Over in Europe, Buckle says the outlook is “slightly more certain”. “Core European economies have been struggling for some time, negatively impacted by a weak Chinese consumer and growing competition from within China itself.

“We expect the European Central Bank (ECB) to continue to cut rates, with 125 basis points of cuts expected by the end of the year. It would take a further deterioration in the outlook for the market to price in further cuts, but that is certainly a possibility as we learn more about US tariffs early in 2025.”

To read more on the outlook for government bonds, credit, equities, emerging markets consolidation and Consumer Duty, visit the January edition of Portfolio Adviser Magazine

Despite the investment trust’s portfolio being made up of senior secured loans to large multinational companies— a world away from the subprime mortgage lenders that contributed to the Global Financial Crisis — retail investors minds can jump back to 2008 when thinking about credit, and Staelens says he is still asked about the downturn by investors.

“It’s very different to what we’re doing,” he says. “We lend to large companies, and you can track default rates going back for 20-30 years. What’s actually more important for us is loss rates because given where we lend, we have security over the assets, so even if there is a default we can sometimes recover all of our money.

“A lot of people ask me, ‘what about the outlook for defaults?’ Ultimately, defaults are bad for equity, because the equity gets wiped out. As a senior secured lender, we typically always have some recovery.”

The strategy offers exposure to senior secured loans and other sub-investment grade corporate credit in Western Europe and the US. Since launch in 2009, it has experienced one calendar year of negative performance.

The fund was rolled out as an investment trust in 2013 and is listed twice within the AIC Debt – Loans & Bonds sector, under its Sterling and Euro tranches. According to the AIC, it currently yields 8.16%.

Avoiding the losers

As part of the team’s investment approach, considerable focus is placed on downside risk.

“On the equity side, people are getting very excited about AI by trying to find the winners,” Staelens says. “We’re trying to avoid the losers, which are the business models that are going to be disrupted by AI and may not have a reason to exist anymore in a few years’ time.”

CVC Credit largely lends to private equity-owned companies, with the loans often used to fund M&A activity.

“If a company gets bought, or wants to buy something else, they come to our market. They say, ‘We want to borrow to buy this company’, and then we do our work. We look at cash flows and we’re always looking at downside scenarios.

“For instance, if the GFC happens again, or if Covid happens again, how would cash flows look in that situation, and what can the company do to preserve liquidity?

“We don’t have much of a look at upside, because that’s not really our concern. We just stress test the downside to see how much headroom there is to cover our debts.”

For this reason, Staelens’ team sticks to what he calls ‘boring’ companies.

“We don’t like to invest in companies that have exciting futures. Typically, they invest a lot in capex and growth and they don’t generate cash. We like to invest in ‘boring’ companies that generate cash flow, because it’s the cash flow that pays the coupon and pays down our debts over time.

“Our biggest exposure is usually healthcare. We know the demand is always going to be there.

“We like anything which has predictable cashflows – we have some exposure to McAfee, the cyber security company. It doesn’t matter how good or how bad the economy is, people will want their computers protected against viruses or cyber attacks.

“It’s businesses with predictable cashflow — we don’t want businesses to invest all the profit they generate on some amazing AI growth projects.”

Loans versus bonds

The onset of interest rate rises over the past 18 months has caused renewed interest in the fixed income portion of portfolios.

Now that interest rates are beginning to move downwards, Staelens explains that if inflation is stickier and base interest rates don’t fall as quickly as the market is pricing in, then floating rate credit will outperform.

The floating rate coupons the trust invests in reset in line with base rate movements quarterly.

“If you lock in your coupons for three or five years [in a high yield bond fund] and inflation sparks again, then your coupon may not be enough to keep track with inflation.

“If inflation drops materially and base rates come down, then having locked in these long coupons will help investors.

“They’re two different products, but I think having a balance with maybe some high yield and some floating rate exposure will help investors in building a balanced portfolio.” 

The managing director tells Portfolio Adviser that, despite interest rates across the developed world already beginning to fall as inflation tempers, fixed income funds will remain popular among investors for their higher returns and attractive yields relative to cash.

According to the latest flow data from the Investment Association, fixed income funds attracted £1.8bn throughout the month of August, pulling overall sales of investment funds to £804m despite losses across equity, money markets, mixed asset and property.

“At the moment, our lowest-risk portfolio has a 15% allocation to cash and money-market instruments. Is this likely to be as high next year, or will this weighting come down and get partially moved into fixed interest? Given the yields on offer, I suspect it will be the latter,” Hughes says.

“This is a trend that we are already seeing now – albeit money market yields are still quite appealing in the short run – but I expect this to continue over the medium term, as this will start fading at the end of the year and early next year.

“I would absolutely expect money to flow out of money market funds and into the fixed interest market.”

See also: What does the gilt yield spike mean for UK bond prospects?

The question remains, according to the managing director, as to which types of fixed income propositions investors will favour. For instance, investors could move “one step up the ladder” and buy into short-dated corporate bonds, or they could “eke out a bit of extra return” by taking on more duration risk and moving into standard markets.

“I think it’ll probably be a bit of a mix of the two,” he reasons. “People will remember being burnt while holding bond funds only a couple of years ago, when they saw drawdowns of 15-20% in what is supposed to be a ‘safe’ asset class. So, I suspect people will be nervous about taking lots of duration risk at the moment, even if it might be the right thing to do.”

Portfolio rebalancing

Hughes has been positive on fixed income “all year”. In January 2024, when the firm was updating its portfolios with the team’s overarching views, it added “quite a bit” to the asset class on the expectation of interest rate cuts throughout the year. “We also thought the yields on cash were going to fall as well – which is two sides of the same coin,” he explains.

“So, we started moving out of cash and adding duration in January; we were doing this in a couple of places. We were adding to UK gilts and UK corporates. We thought that UK investment-grade corporates looked like the sweet spot to us – given the yield pick-up we were getting over cash and government bonds, as well as an incredibly low default rate.

“We were seeing an average 100 basis-point return over cash, maybe more at various points.”

See also: Three ways asset allocators are buying bond funds

This was during the first half of 2024, and Hughes admitted it “didn’t really work like that” given stickier-than-expected inflation data, and central banks “kicking rate cuts further down the road”.  

“Bonds actually underperformed cash during the first half of the year. But in the second half, we saw inflation data start to fall backwards quite sharply, with some employment data from around the world coming in slightly weaker. Then, we saw rate cuts come through in the eurozone, the UK and the US, which has clearly fed through to bond yields.

“This position started to work quite nicely for us in the second half [of the year].”

UK corporates and US treasuries

Hughes has a preference for UK investment-grade corporates because yields are higher than in the likes of the US or Europe. AJ Bell also reaps the benefit of them being sterling-denominated as opposed to receiving sterling-hedged yields.

“Compared to the likes of European investment-grade bonds, we are getting about a 1% yield pick-up on that,” he explains. “However, in our international bond bucket – our non-hedged bucket – we overrode using global government bonds as a core asset class and instead bought US Treasuries.

“The reason is that the global government bond index has some US bonds and some UK bonds, but it also has a lot of European and Japanese government bonds.

“Across both of these regions, the yields have been artificially supressed by government and central bank action. At the start of the year, you could get a 1% yield pick-up by owning dollar bonds rather than global government bonds.”

The managing director says there is the “added attraction” of the US dollar serving as a “safe haven hedge, if things get ugly out there”.

“Now, sterling has strengthened against the dollar, but it really matters. We were getting paid a higher yield, while benefitting from having a hedge in the portfolio if things got difficult. For us, it looked like an attractive trade and it has worked out exactly like that

“US treasuries have outperformed global government bonds this year.  I think this is a subtlety that quite a few people might have missed, that they benefit from the yield pickup and keep their edge without getting exposure to the likes of Japan and Europe.”

High-yield headwinds

One area of fixed income AJ Bell has been reducing its exposure to is high-yield fixed income. At the start of the year, the team had a 10-12% position in the asset class, but this has since been halved due to tight spreads.

See also: Square Mile: Are falling US interest rates the panacea for bond funds?

“We didn’t think we were being paid suitably for the risk we were taking,” Hughes says. “We have been wrong on that, because spreads have become even tighter. High yield has actually performed very well this year, largely on the back of strong equity markets, too. We had some exposure but not as much as we did have – that cost us a little bit.

“However, we’re very comfortable with the fact we took some of that risk out of the portfolios, because the risk-return trade-off did look weak at the end of August. On the day that the Japanese stockmarket suffered a big correction, high-yields spreads blew out by 1% in a day.

“This just shows what can happen when you’re trading at very, very tight spreads. As soon as any kind of shock or uncertainty rears its head, the risk of drawdown can be high.

“Therefore, we are perfectly happy parking that capital in investment-grade bonds – obviously while being paid a lower coupon, but having a much lower risk at the same time.”

Investors have piled into cash and money market funds following the meteoric rise in rates from 2022. However, with rates expected to fall soon investors may want to consider putting some of that cash exposure elsewhere, and we think a natural first step is short dated high quality corporate bonds and then all-maturity corporate bonds once the curve dis-inverts.

Investors added to cash as rates rose

Assets in money market funds are over $6tn, having doubled from the asset level pre-pandemic, with Fidelity’s money market funds seeing strong asset growth too. This makes sense, for investors used to almost zero rates for the decade following the Global Financial Crisis the prospect of >5% yields from low-risk cash investments was, and is, attractive. As our money market team attest here, the case for cash remains strong. There will always be a need for cash, particularly for those investors prioritising liquidity and capital preservation. However, some investors may be allocating to cash for the prospect of outperformance versus other asset classes. While this was the right call in recent years (cash outperformed most asset classes in 2022, for example), those investors might want to consider corporate bonds looking ahead.

Interest rate cuts are here

The negative drivers of bond returns – inflation and interest rate hikes – are abating which sets fixed income up well for the period ahead. Inflation is now at, or close to, target which has given the green light for the major central banks to start cutting interest rates. The Bank of England has cut once already and is very likely to go again in early November, while the Federal Reserve and European Central Bank have also started to ease monetary policy.

Cash offers an attractive yield to maturity

Ahead of a cutting cycle cash rates are elevated because, like today, they tend to have followed a series of rate hikes which optically makes cash look attractive from a forward-looking return standpoint. As figure 1 shows, with rates still elevated investors can generate an attractive yield to maturity from cash, which is similar to corporate bonds.

Figure 1: Yield to maturity is similar across cash and corporates bonds

Source: Fidelity International, Bloomberg, 14 October 2024. 1-5yr Corporate Bonds = ICE BofA 1-5 Year Eurosterling Index; All Maturity Corporate Bonds = ICE BofA Euro-Sterling Index; Government Bonds = ICE BofA UK Gilt Index; High Yield Bonds = ICE BofA Sterling High Yield Index; Sterling Cash = ICE BofA Sterling 1-Month Deposit Bid Rate Constant Maturity Index.

With rates expected to fall, it might be time to consider corporate bonds

So, why bother with corporate bonds if you can get more-or-less the same level of yield from cash? Firstly, cash is more exposed to reinvestment risk. Reinvestment risk refers to the risk that investors are unable to reinvest cashflows, such as coupons or principal, at a rate comparable to the current rate of return. As rates fall, cash and money market instruments are more exposed to this risk given these securities often have maturities measured in days (rather than years). This means cash yields (and returns) more closely follow central bank rates lower relative to bonds.

On the flipside, fixed income securities have a fixed income for a longer period of time and the value of those cash flows rises as interest rates fall. This impact is known as duration risk, a measure of the sensitivity of the price of a debt instrument to a change in interest rates (yields fall, prices rise). So, if central banks are cutting rates, time to add as much duration as possible? Not quite, for two reasons. Firstly, markets tend to price in cuts before they happen and so the extent of the rally in bonds during a cutting cycle depends on how many cuts were already priced in. Secondly, as we have highlighted before, if the yield curve is inverted, like today, then short dated bonds can outperform longer dated bonds as the curve normalises despite having less duration risk. In these unique circumstances your position on the curve can be a more powerful driver of return than the absolute level of duration. The curve inversion makes us particularly constructive on 1-5yr corporate bonds.

Finally, through active management, we can pick those bonds with a more attractive level of yield per unit of risk to generate an excess yield over cash and comparable indices. For example, while the 1-5yr corporate bond market offers a yield of 4.9%, the yield to maturity on Fidelity Short Dated Corporate Bond (Fidelity’s active 1-5yr corporate bond fund) is 6.5%, while Fidelity Sustainable MoneyBuilder Income and Fidelity Sterling Corporate Bond (Fidelity’s two active all maturity corporate bond funds) offer a yield to maturity of 5.6% each versus the all maturity corporate bond market at 5.2%.

History suggests high quality bonds tend to perform well versus cash in cutting cycles

If history is a useful guide it seems unlikely that cash will outperform safer bond assets as interest rates fall, but it may outperform high yield and equities. Bonds offer an attractive proposition as a first step back in, and particularly short dated corporate bonds for the more conservative investor. This is because bonds tend to perform well as central banks cut interest rates and – with the front end of the curve more sensitive to interest rate policy, and yield curves inverted – short dated bonds could stand to benefit more in the earlier phases of the cutting cycle.

Corporate bonds offer a relatively safe option versus cash over the longer term

Investors with high cash allocations tend to be risk averse, so what about a worst-case outcome over 3 and 5 years? As figure 2 shows, over a 3yr holding period, the worst excess return over cash from 1-5yr corporate bonds in the cutting cycles we identified was +3.6%, when cash delivered +19.2% returns while 1-5yr corporate bonds delivered +22.8% returns (October 1998). In the other 3 cutting cycles, 1-5yr corporate bonds outperformed cash by even more over 3yrs (with this outperformance ranging from +5.4% to +11.8%). For high yield and equities, the worst-case outcomes were -19.8% and -37.3% respectively over 3yrs. It is also notable that the FTSE 100 was down in absolute terms over 3yrs in 3 of the 4 cutting cycles we identified. The average 3yr return from the FTSE 100 versus cash in the four cases we identity is -7.4%, this is because central banks tend to cut into weakness to stimulate the economy. Over 5yrs following a cutting cycle, all maturity corporate bonds stand out as a relatively safe option based on history with the worst-case excess return over cash at +14.2%. This was in the 5yrs following December 1995 when cash delivered +36.7% return versus all maturity corporate bonds at +50.9% (December 1995). All maturity government bonds come in second, largely due to its higher duration profile (at 9.1yrs) relative to 1-5yr corporate bonds (at 2.5yrs).

For the risk averse investor looking to outperform cash in the medium term we think corporate bonds are set up well as the BoE cuts interest rates. Furthermore, with the yield curve inverted, 1-5yr corporate bonds may be an attractive option over 3yrs. Over the longer term (5yrs), all-maturity corporate bonds standout well as the curve normalises and investors can once again benefit from higher yields for taking more risk via longer dated bonds.

Figure 2: Worst excess return over cash during BoE cutting cycles over 3yrs and 5yrs suggest corporate bonds look attractive for risk averse investors

Source: Fidelity International, Bloomberg, October 2024. 1-5yr Corporate Bonds = ICE BofA 1-5 Year Eurosterling Index; All Maturity Corporate Bonds = ICE BofA Euro-Sterling Index; Government Bonds = ICE BofA UK Gilt Index; High Yield Corporate Bonds = ICE BofA US High Yield Index used for the first cutting cycle, while ICE BofA Global High Yield Index (GBP Hedged) was used for the remaining cycles; Equities = FTSE 100. Cash rate was ICE BofA British Pound 6-Month Deposit Bid Rate Constant Maturity Index for the first cutting cycle and then the ICE BofA Sterling 1-Month Deposit Bid Rate Constant Maturity Index for the remaining 3. Uses 4 Bank of England interest rate cutting cycles between 1995 and 2024, starting in December 1995, October 1998, February 2001 and December 2007 respectively. Returns start 3-months prior to first cut to incorporate the impact of expectations.

What if rates don’t fall much? A relatively large yield move is needed to lose a years’ worth of carry

What is the risk to this view? If rates are not cut by as much as expected, or the BoE start to hike. The likelihood of hikes seems low, but we cannot discount this, or a continued hold. The good news for corporate bond investors is that yields have risen materially in the last 2yrs, meaning the starting point for return from corporate bonds is attractive and it therefore takes a relatively large yield move to ‘wipe out’ a years’ worth of carry. This is known as the breakeven rate (calculated as yield to maturity divided by interest rate duration). As figure 3 shows, 1-5yr corporate bonds have a breakeven rate of 2.0%, meaning yields need to rise by 2% before you lose a years’ worth of carry. 3yrs ago this breakeven rate was 0.3%. The breakeven rate for 1-5yr corporate bonds compares favourably to all maturity corporate bonds and all maturity Gilts, at 0.9% and 0.4% respectively. On balance, short dated corporate bonds seem like an attractive risk-adjusted option.

Figure 3: Wipeout yield, the yield move required to lose a years’ worth of carry

Source: Fidelity International, Bloomberg, 14 October March 2024. 1-5yr Corporate Bonds = ICE BofA 1-5 Year Eurosterling Index; All Maturity Corporate Bonds = ICE BofA Euro-Sterling Index; Government Bonds = ICE BofA UK Gilt Index. Wipeout yield is worked out as yield to maturity divided by interest rate duration and is a measure of the yield move required to ‘Wipeout’ a years’ worth of carry.

Better off in government bonds?

So why not go for government bonds as the BoE starts to cut? Firstly, we find that 1-5yr corporate bonds outperform government bonds on average in the first year following cuts and, as figure 2 shows, the worst-case outcomes are better in 1-5yr corporate bonds over 3yrs, while more attractive in all maturity corporate bonds over 5yrs. Why? Because investors in corporate bonds benefit from the credit spread, the additional yield for lending to corporates over government bonds. The credit spread today is roughly 1%, providing an additional tailwind to performance. This is despite the all-maturity Gilt index having much more duration than both the 1-5yr and all maturity corporate bond indices, reaffirming the notion that position on the curve is important in a cutting cycle. The credit spread also provides a mild cushion against yield rises, which explains why the Wipeout yield is more attractive in corporate bonds over government bonds (see figure 3).

Perhaps it is time to put some of that cash into corporate bonds.

Fund returns versus index (net of fees)

Past performance is not a reliable indicator of future returns.

Source: Fidelity International, 30 September 2024. Performance reflects Fidelity Short Dated Corporate Bond Fund W Income Shares, Fidelity Sustainable MoneyBuilder Income Fund W Income Shares and Fidelity Sterling Corporate Bond Fund W Income Shares. Basis Bid-Bid with income reinvested in GBP.

IMPORTANT INFORMATION

This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Due to the greater possibility of default, an investment in a corporate bond is generally less secure than an investment in government bonds. Fidelity’s range of fixed income funds can use financial derivative instruments for investment purposes, which may expose them to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Reference to specific securities should not be interpreted as a recommendation to buy or sell these securities and is only included for illustration purposes. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document (Key Information Document for Investment Trusts), current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. FIPM: 8524

Janus Henderson said the deal will complement its existing securitised credit franchise and its capabilities in public asset-backed securitised markets.

Victory Park Capital is headquartered in Chicago and manages approximately $6bn assets.

It invests across sectors and asset classes, and structured financing and capital markets solutions through affiliate platform Triumph Capital Markets.

See also: View From The Top with Polen Capital CEO Stan Moss: 12 years of change

Th firm was founded in 2007 by Richard Levy and Brendan Carroll.

Ali Dibadj (pictured), CEO of Janus Henderson, said: “As we continue to execute on our client-led strategic vision, we are pleased to expand Janus Henderson’s private credit capabilities further with Victory Park Capital. Asset-backed lending has emerged as a significant market opportunity within private credit, as clients increasingly look to diversify their private credit exposure beyond only direct lending.

“VPC’s investment capabilities in private credit and deep expertise in insurance align with the growing needs of our clients, further our strategic objective to diversify where we have the right, and amplify our existing strengths in securitised finance. We believe this acquisition will enable us to continue to deliver for our clients, employees, and shareholders.”

Many investors believe banks are only profitable when interest rates are high, but banks have shown resilience and adaptability in the face of low or negative rates.

They can offer attractive returns and value in both equity and credit markets, and we anticipate this remaining the case over the medium to long term.

Banks in Europe have emerged from a decade of either low or negative rates stronger than ever, with clean balance sheets, solid capital, and a tight approach to cost management.

As rates ticked up over the past two years, yields on deposits remained low while loans and other assets repriced significantly, boosting customer spreads. Thus, net interest income (NII) at sector level has grown by around 50% on average since rate hikes began, offsetting pressure on fees and costs and leading to net profit growth greater than 60%.

See also: ‘A tentative start’: Bank of England cuts interest rates to 5%

With central banks now looking at reversing their tightening stance, we think NII will naturally meet an inflection point, though we do not expect NII nor profit to revert to pre-2022 levels.

For a start, rates are expected to remain higher for longer. And markets are also pricing in a Euro rate at about 2.4% throughout 2025, which means their asset yields already reflect a lower rate scenario.

In addition to this, the higher loan production that would come with lower rates and contribution from both structural hedge books and more tactical hedges put in place over past quarters should smooth the NII reduction, while a pickup in activity should contribute to a revival of fees.

While we expect a more stable trend in revenues going forward – and possibly a pickup in credit losses as economic fundamentals deteriorate – bank profitability should remain solid. This means distribution yields of around 10% should be broadly sustainable and attractive.

Europe offers a bright spot in credit

Within credit, the fundamental and technical backdrops remain very solid. Despite the meaningful spread compression in valuations over the past six months, levels remain attractive across the capital structure, with tier 1 (AT1) bonds offering around 400 basis points, tier 2 bonds about 180 basis points, and senior bonds around 90 basis points

Corporate BB (high yield) bonds currently trade around their pre-Covid levels at circa 220 basis points across Europe and the US despite the meaningfully worse fundamental backdrop. The risk-reward in European financial credit is one of the most interesting in global credit.

Outside Europe, banks are facing very different interest rate backdrops depending on the market. In the US, rates have likely peaked and the Fed is now expected to start its easing cycle in September.

See also: Federal Reserve holds rates in July decision

In contrast to Europe, this should very much be a tailwind for most US banks as they have been suffering from intense deposit competition and high funding costs since the US banking crisis sparked by the failure of Silicon Valley Bank last spring.

Lower rates should help to stabilise net interest margins, while fixed asset repricing should similarly support top-line growth as longer duration loans and securities start rolling off the books. As a result, we suspect net interest income at most US banks will start ramping higher into 2025, if the forward curve plays out.

A similar situation prevails in Brazil, where most banks are liability sensitive (i.e. benefitting from lower rates). However, given fiscal concerns and stubbornly high inflation, the market has reversed course and started to price in higher policy rates in Brazil over the next year. This would be painful for bank earnings as margins are crimped and volume growth suffers.

Japanese banks have already priced in earnings upgrades

Contrast all this to the situation in Japan – the Bank of Japan (BoJ), along with the central bank in Brazil, is one of the only major central banks in the world projected to be hiking rates over the next 12-24 months.

Similar to the position of European banks at the outset of the ECB’s hiking cycle, Japanese bank balance sheets are highly liquid and geared to rising interest rates. Earnings’ upgrades could be substantial if higher rates do come to fruition, as we saw over the past couple of years in Europe.

See also: ‘If we cannot afford it, we cannot do it’: Chancellor Reeves hints at tax rises as she sets Budget date

Nevertheless, opportunities in Japanese banks may largely be behind us as valuations have already frontloaded these potential upgrades. Japanese banks have revalued from eight to 12 times forward earnings, whereas European banks started the hiking cycle around six to 7 times.

On top of that, it may well be difficult for the BoJ to push through projected rate hikes at a time when other central banks are all cutting. Either way, it is another piece of the puzzle of the global financial landscape which will be fascinating to watch play out over the next couple of years.

Interest rates are an important driver of bank earnings and, ultimately, stock and bond returns. That said, different banks have different sensitivities to interest rate backdrops. As we look across the global financial footprint, we think banks are still interesting in a low-rate environment, and we think investors should look at both equity and credit opportunities in the sector as they offer attractive yields and value.

Bond yields have been pushed up to their highest levels in almost a decade, but the widely-anticipated interest rate hikes from central banks later this year could drag them down to more modest levels.

As such, most UK asset owners are scrambling to lock into yields at historic highs, with half (51%) extending the duration of their existing bond portfolios.

Ed Harrold, fixed income investment director at Capital Group, said: “As monetary policy inflection nears, high quality bonds are becoming increasingly attractive.

“With yields near decade highs, UK bond investors have a rare opportunity to strengthen their defensive allocations and secure attractive yields.”

See also: Nordea AM launches two Article 9 bond funds

Investors are also taking more risk in the bonds they are buying, with 28% increasing credit risk over the coming year. A lesser 15% plan to be more risk-averse in their fixed income buying.

A unifying consensus among bond buyers was that active strategies offered the best exposure, with 83% agreeing that active funds were the best approach for investing in high-yield credit.

Demand for fixed income ahead of potential rate hikes may be high, but UK asset owners displayed more interest in the US and Europe than their home market.

Investment grade corporate credit was at the top of investors’ shopping lists, predominantly in the US (37%), followed by the eurozone (34%), and lastly in the UK (23%).

See also: Is the landscape finally changing for commodities?

Overall, credit spreads tightened and strong investor appetite supported issuance in Q1 despite scaled back expectations of interest rate cuts in the US.

In the first quarter, investors focused on the positive impact of stronger-than-expected US growth and employment data in the US and stabilising growth and lower-than-expected inflation in Europe.

Credit markets benefited from spread tightening and mostly positive total returns in the quarter.

Janus Henderson noted that credit spread tightening helped to absorb some of the upward pressure on yields caused by markets scaling back forecasts for US Federal Reserve interest rate cuts for 2024, from six cuts to two, due to sticky US inflation.

Jim Cielinski, Janus Henderson global head of fixed income, said: “We foresee the possibility of further spread tightening but accompanied by rates volatility if strong US growth causes supply-led disinflation to evolve into demand-led inflation. At this point in the cycle, we expect greater return dispersion within sectors. Issuer selection will be even more critical at this juncture.”

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Monetary policy divergence

The report also noted that central monetary policy divergence will have implications for yield levels in different regions, particularly as spread tightening momentum slows.

In Q1, the Swiss National Bank cut interest rates alongside several EM central banks. Meanwhile, expectations have grown for the European Central Bank to begin cutting interest rates ahead of the Fed.

Looking ahead, Cielinski added: “As we get to more expensive valuations and later in the cycle, we think it makes sense to look globally to economies that either have a friendlier policy or growth backdrop.

“We see Europe as relatively attractive, given a clearer path to lower rates, while emerging market debt also looks attractive given the scope for further monetary policy easing.

“We continue to like securitised credit, especially in the mortgage space, while in corporate credit, banks look to be in good shape for this stage in the cycle and real estate is exhibiting better access to capital.

“The risk is that supply-led disinflation shifts towards demand-led inflation, creating further rates volatility and a bumpier credit cycle.”

“When David Roberts tells you he has an exciting opportunity, you meet him,” she tells Portfolio Adviser.

The opportunity in question, which led to Roberts re-entering the industry despite retiring 18 months previously, was to co-launch a bond boutique at Nedgroup Investments.

“We met the next day and discussed the group opportunity, and the boutique, as well as the fact we had a blank sheet of paper in terms of how we structure the portfolio,” Ralph explains. “The more we spoke, the more it became obvious that we were very aligned in how we had previously run money.

“We both keep a keen eye on risk. We don’t take huge bets one way, and we do keep tabs on what clients expect from us.

“It became very clear that, despite coming from different angles – where David is much more of a macro rates manager and I am more of a credit fund manager – that we manage money very similarly.”

After just “a week or two”, Ralph commits to the idea. And by September, both her and Roberts are fully integrated into the company.

“We started in September, which reflects one of the reasons I joined – there is no elongated pipeline or process in terms of decision-making; people agree and things gets put in place.”

Palomar Fixed-Income

Ralph and Roberts’ boutique, Palomar Fixed-Income, was the first boutique to be created for Nedgroup Investments’ in-house multi-boutique model, which came to fruition in May last year.

Nedgroup Investments is housed under the Nedbank Group umbrella, a South African-based financial services group which offers banking services to both wholesale and retail clients, as well as insurance, wealth management and asset management services.

But despite being a global asset manager in its own right with more than $20bn of assets under management, Nedgroup Investments remains a “sleeping giant” within the UK asset management industry, according to the firm’s chief commercial officer Apiramy Jeyarajah (pictured right).

The former head of UK wholesale at Aviva Investors, who moved to Nedgroup Investments ahead of the launch in April last year, says: “Nedgroup has been in the UK for 30 years, but it has not really made itself known. It is an organisation that has grown organically from $2bn to $20bn.

“We started off supporting our South African clientele in building their offshore exposure. But one of the fundamental beliefs that we have always held is the ‘boutique advantage’.

“So, by partnering with boutiques, each manager has a singular view on an investment strategy, and they are therefore much more aligned to their end clients than if they were working within a larger corporate structure.”

The business has a long track record of establishing partnerships with other boutique asset managers from around the world, including the likes of Veritas Asset Management, First Pacific Advisors and Resolution Capital. But the difference with the new platform launch is that it will allow fund managers to open up a new shop from scratch, as opposed to integrating a pre-existing business into the firm.

“When Tom Caddick took on the responsibility of CEO and managing director of international business [in December 2022], he began to analyse where the gaps in the market are and which client concerns we can really deal with,” Jeyarajah says.

“What we noticed is that, regulatory-wise now, it is so hard to set up new boutiques. How can we support that?

“The second element ahead of the boutique set-up was that, over the last three-to-five years, we have had diminishing returns in core fixed income markets.

“What can we do – and particularly now given uncertainty and volatility – now that there are opportunities arising in that space?”

The chief commercial offer adds that, in order to generate desirable returns amid a challenging backdrop, fixed income managers have been increasingly allocating to exposure outside of their funds’ benchmarks. This therefore changed the risk-reward exposure of mandates and made it increasingly difficult for fund selectors and asset allocators to “understand where the risks lie and where their returns are coming from”.  

“We were therefore looking for people who were very consistent in their approach in this space, who have been very focused on core markets and how they drive those opportunities.

“That’s why we decided to contact David Roberts, who then contacted Alex.”

One particular reason Roberts seemed a good fit for the business is his long-held view of having ‘skin in the game’, according to Jeyarajah.

“David has been very vocal in the marketplace saying he was invested in his own funds, and that when there were no longer opportunities in this space, that he would step away.

“This is effectively what he did. When we first started engaging with him, he told us markets aren’t looking very good. Integrity is very important. Then, as that conversation progressed and the market dynamics started to shift, progress accelerated massively.

“Then, David joined in March and I joined in April. Everything moved super quickly.”

Shortly after Roberts’ appointment, Ralph was quickly chosen as the top candidate for co manager.

Jeyarajah says: “I was in the office when David [Roberts] and Tom [Caddick] were discussing who his co-manager should be. David asked about Alex Ralph and, without skipping a beat, Tom reeled off her fund’s entire track record. When you have been a fund selector your whole life like Tom has, this is an enormous benefit when building a team.

“We had no shortlist whatsoever. In fact, David said Alex [Ralph] was always his biggest competitor in the market, but that he had never met her. And that was when he sent the LinkedIn message. The next day Alex was in the office.”

In fact, it was this ability for the business to make decisions in a timely fashion that attracted both Jeyarajah and Ralph to the business in the first place.

“It was a great opportunity to challenge what a good boutique looks like,” the chief commercial officer continues. “How can you remove the friction in the sales system? How can you be as client-centric as possible?

“We don’t have any of the old legacy or infrastructure issues. We can be agile, we can create a nimble team, and we can hire people based on their individual skillsets and how these skillsets come together.”

Global Strategic Bond fund

By November last year, Ralph and Roberts had already set up the parameters that their fund – the Nedgroup Investments Global Strategic Bond fund – would operate under.

Now widely available to UK retail and professional investors, the fund aims for superior rolling three-year risk-adjusted returns relative to the Bloomberg Global Aggregate Total Return index. It does so through a portfolio of between 80 and 100 issues, 20% to 60% of which are held in investment-grade corporate bonds at any one time. However, it will also hold between 30% and 40% in developed market sovereign bonds and 20% to 30% in high-yield bonds, although it will steer clear from so-called ‘junk bonds’, which are rated as CCC or lower. It can also hold up to 10% in emerging market debt.

Ralph says: “The investment thesis is back to the core, because we believe that given where yields are, we can derive a very attractive income from these core markets.

“We have put certain parameters in place – we won’t go into AT1s for example, or CCC-rated bonds. We’re very much staying out of those equity-like instruments, because we think we can generate good performance without them. For the fund throughout the cycle, the average credit rating will be BBB.”

In terms of current positioning, the fund is underweight high yield relative to its own median parameter. And, for any emerging market debt that is held, this will only be issued in US dollars or euros.

“We don’t take any currency risk – it is all hedged, and it’s all hard currency. However, it will essentially be developed market [debt] in the main,” Ralph explains.

In terms of duration, the manager says this currently stands at an average of six years – although the fund is able to move from zero to ten years. However, this will typically remain between three-to-eight years.

“We do believe that the levels of yield are attractive. We think most of the returns over the short-to-medium term will be income-driven,” she says. “Having said that, on a 12-month view, we do think we will make money on government bonds. That is why our duration stands at six years. We would look to go longer if yields rise a bit further at the long end. But right now, we’re in the belly of the curve.”

Ralph and Roberts believe we are close to – if not at – peak interest rates. However, they don’t believe yields will collapse which is “what some competitors are positioning for”, given their “very long duration numbers”.

“We think yields will hover around where they are now. And, if they do come down, they will only come down slowly because of the current supply dynamics,” Ralph says.  

In terms of credit opportunities, she is positive on European telecoms, as the manager thinks their balance sheets will improve “significantly” over the next decade due to the completion of fibre network roll-outs.

“We also have a preference for senior financials,” Ralph adds. “This fits in with our idea that overall spreads aren’t massive ‘buys’, but that financials are fairly cheap relative to the rest of the market. We would rather play it safe in senior parts of the sector because overall spread dynamics aren’t hugely attractive. So, we are staying quite defensive.”

Next steps

Palomar Fixed-Income and its Global Strategic Bond fund is just the first launch for Nedgroup Investments’ multi-boutique platform, says Jeyarajah.

While the firm’s ‘Best of Breed’ list of funds houses eight sub-investment managers, Palomar Fixed-Income’s offering stands as the sole player on its new platform.

“We are always looking at what phase two looks like,” the chief commercial officer says. “We are always thinking about solving the next problem for clients, and what they are interested in.

“It is a process that we went through [with Palomar’s fund] – talking to clients around the design of the strategy to make sure it aligns with their needs.

“And, as a result of those conversations, we will do the same in the future, looking to grow and launch new boutiques that solve problems for investors.” 

The bond market has been giving conflicting signals. On the one hand, the government bond market was pricing in significant rate cuts, which implied a markedly weakening economic outlook. On the other, corporate bond spreads over government bonds were tight, suggesting that the market did not see an imminent rise in defaults.

These disparate views from different parts of the bond market have now been largely resolved. The yield on the 10-year US treasury has risen from 3.9% at the start of the year to its current level of 4.2%. Expectations of interest rate cuts have been pushed out. This puts government bond markets more in line with corporate bond markets, where spreads continue to be low.

See also: Will M&A and buybacks breathe life into the UK stockmarket?

However, this poses a different question for fixed income investors. James Ringer, fixed income portfolio manager at Schroders, says the more pressing discussion for his team is whether markets have now overshot. The bond market is both cause and effect. As the US Federal Reserve started to talk about rate cuts in November last year, it pushed government bond yields lower. This created an effective stimulus in the market, which “greased the wheels of the economy,” says Ringer. “The market narrative has shifted quickly. The market has priced out the probability of a hard landing.”

A hard landing still looks unlikely. The January non-farm payrolls report showed ongoing momentum in the US labour market, and the latest GDP figures also showed broad strength across the US economy. Ringer says: “The non-farm payrolls report was huge and wage growth was buoyant as well. That set off a chain reaction, compounded by the CPI report. A number of data releases shifted people from one side of the boat to the other in very short order.”

However, he adds: “When that happens, there is typically an overshoot. We’re currently debating the extent of that overshoot.” They still see the rate of wage inflation falling to a level more consistent with central bank targets. They still see inflation falling, even though there is a blip. “The market may have gone too far in pricing out a no landing versus a soft landing, and has also gone too far in pricing out a hard landing.”

In portfolios

While that means that government bonds look better value, there are still some parts of the corporate bond market that look stretched. In particular, Ringer highlights US dollar-denominated investment grade bonds. “They are now approaching the lows in credit spreads seen when the central bank had just created a bond purchasing programme. We prefer European investment grade credit, where spreads are not at historically tight levels.”

Donald Phillips, co-manager on the Liontrust Strategic Bond fund, is underweight both investment grade and high yield. Investment grade exposure was reduced by 10% during January to 42% – their neutral position is 50%. They have a small underweight in high yield – 18% versus 20%. “The economy is slowing down and credit is priced for perfection,” he says.

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Nevertheless, he says the outlook for credit is still benign and they remain poised to add to their credit holdings if there are periods of volatility. He says high yield is higher quality than it has been historically, and the overall yield is still attractive. He is focused on the BB or B area of the market and on sectors where there appears to be some mispricing. He would include areas such as real estate in this. While there are some obvious problems with the office market, “the baby has been thrown out with the bath water, particularly in Europe”, he says.

Nevertheless, he believes government bonds now look attractively valued, with a relatively high yield. The fund remains longer duration, at seven years, and he believes interest rate cuts are still coming down the track. He admits they were a bit early, but, “we are paid to wait”.

Different regions

There is also a question over whether there is a greater gap opening up between individual regions. While the US continues to record strong economic growth, the UK and Eurozone are flirting with recession. This is likely to bring inflation down harder. Yet their government bond markets continue to move in lockstep.

The assumption is that the Europe and UK markets will not be able to cut ahead of the Federal Reserve. However, Ringer believes the ECB and Bank of England may be more independent than markets believe: “Where central banks aren’t as independent is where the economic is highly sensitive to the currency – more a feature of the developing world. I would like think the Bank of England and ECB have a degree of independence from the Fed.”

See also: Diverging performance: What is driving emerging market returns in 2024?

He believes that central banks will follow their own mandates and whichever central bank feels most confident on the inflation trajectory will cut rates first. This suggests that the overshoot may be more acute in the UK and Eurozone. Dickie Hodges, head of unconstrained fixed income at Nomura Asset Management, for example, has been reducing duration, with the notable exceptions of intermediate German bonds and long-dated UK bonds.

Ultimately, a soft landing remains the most likely scenario, given the data. However, there are risks on either side, and the market may now be under-pricing the risk of a negative outcome for economic growth, particularly in the UK and Europe. Corporate bonds and government bonds appear to be moving to a more harmonised view on the economic outlook over the next few months.

Yesterday was Blue Monday – allegedly the most depressing day of the year – but investors shouldn’t be blue about certain parts of the market.

Despite a slowing economy and possible recession on the cards, there are attractive entry points in areas supported by positive structural macro themes.

We think there are especially interesting opportunities in emerging markets, credit, and equities this year, where investors need to look to duration, locking in higher yields and acquiring assets that have been marked down.

Emerging Markets

High expectations for Chinese growth may have disappointed last year, but net flows into emerging markets have remained positive since 2020. Stable foreign direct investment inflows have accounted for 60% of balance-of-payments funding, compared with 20% for portfolio inflows.

Commodity-producing nations have been particularly fortunate thanks to the fact that commodity prices have generally remained firm. New industrial demand plays into the hands of many emerging market countries, which are in fundamentally better shape than developed markets in times of stress.

We expect Latin American economies such as Brazil and Colombia to benefit the most given their very high real rates, positive inflation dynamics and solid external balances. Fundamentals in many emerging markets remain underappreciated and the emergence of a multi-polar world will boost capital investment and growth across the developing world.

Credit

Credit experienced a bear market in duration last year, as developed market sovereign bond yields rose. At the same time, continued low default rates and sharply reduced issuance narrowed credit spreads.

The weaker economic environment expected this year (and the reset in the cost of capital) are likely to increase default rates and consequently widen spreads in 2024. However, we see interesting potential in specialist segments such as bank senior and subordinated debt, as well as structured credit, where we believe investors are overcompensated for credit risk compared to traditional high-yield and investment-grade corporate bonds.

See also: Momentum: Seven risks for investors to watch for in 2024

Credit markets have repriced for a new inflation and interest-rate regime. Investors should therefore favour assets that will be resilient to structurally higher cost of capital, in addition to other forms of diversification. For example, elevated real interest rates on US inflation-linked bonds offers attractive return with an embedded inflation hedge.

Equities

The double-digit return of the S&P 500 last year might have people forgetting that the US index still has some way to go before recovering to its high in December 2021.

We saw a low-quality rally in 2023 that was driven by composition and narrative. The performance of equity markets in 2024, however, will be significantly impacted by trends in US inflation and economic growth. Consumer confidence in the US already boomed in December thanks to improving business conditions and a strengthening labour market.

The energy transition also provides stability for the year ahead, with the need to cut emissions and heightened desire for energy security driving higher capital spending. With transition-related equities massively de-rated following steep hikes in interest rates, we believe now is an attractive entry point into some of the best-positioned companies in this area.

To avoid the winter blues, investors should embrace greater flexibility in asset allocation, add duration and take advantage of thematic opportunities – there are always opportunities despite the gloom.

See also: US inflation ticks up 0.3% in December: Could interest rate cuts be pushed back?