The evidence of a challenging “last mile” in the advanced countries’ battle against inflation, and the backup in government yields that came with that, did not dent the impressive asset price rally that started last October. Neither did news that Germany, Japan, and the UK had fallen into recession, the tragic prolongation of deadly wars, or the heavy election calendar.

The tug-of-war between more supportive financial conditions and less accommodating growth will place a premium on responsive domestic policies, something that quite a few emerging economies did well on in the last few years. It is also likely to increase the pressure for greater dispersion in both economic and financial outcomes within the asset class.

Resilience, optionality, and agility, “ROA,” are the path toward capturing our target returns but without making any non-recoverable mistakes. In doing so, we will continue to respect and embrace the volatility in the markets by planning the trade and trading the plan.

This past quarter certainly witnessed the tug-of war between the policy trilemma facing central banks and climbing of the wall of worry that was characterized between positive carry and pull to par. We would not be surprised to see the next phase resulting in inflows that chase the recent returns and propel the asset class higher. We expect continued volatility that will permit for tactical positioning of capital driven by our top-down and bottom-up perspectives on the asset class and will therefore, continue to respect and embrace the volatility in the markets by planning the trade and trading the plan.

No one ever said removing the punch bowl would come without challenges. Aggressively raising interest rates and withdrawing liquidity from the system (QT) made fender benders / financial accidents even more likely. One externality has been volatility, which if embraced properly is not necessarily a bad thing. Going forward, we must navigate the trilemma between growth, inflation and financial stability. We will continue to do so by relying upon top-down analysis, high conviction security selection, dynamic asset allocation and tactical positioning. As always, we will look to exploit the volatility in the marketplace by planning the trade and trading the plan.

After a challenging 2022 in which we witnessed one of the largest dislocations, in terms of both depth and breadth, we remain constructive on the medium to long-term prospects in our markets. Whereas 2022 was challenging for both sides of the “60/40” portfolio, we believe the 40% fixed income component of portfolios will provide compelling returns both in absolute and relative terms going forward and thus, emerging market debt should be an important return driver of fixed income portfolios. Further, we believe private credit/asset backed lending in emerging markets will continue to provide equity-like expected returns but benefit from strong risk mitigation factors including seniority, credit quality and collateral packages. Lastly, we expect special situations to continue to provide compelling non-correlated returns.