Global Fixed Income

Exploring a Multi‑Asset Credit (MAC) Allocation

A MAC strategy may have benefits in a volatile, low‑yield world.
September 2020
Michael Connelly, CFA, Portfolio Manager
Saurabh Sud, CFA, Portfolio Manager
Anna Dreyer, CFA, Ph.D., Head of Fixed Income Risk & Portfolio Construction Research
Gregor T. Dannacher, CFA, Global Credit Portfolio Specialist

Key Insights
  • The longer‑term goal of MAC portfolios is harnessing attractive opportunities across global fixed income credit sectors and instruments.
  • MAC portfolios have the potential to capture alpha through sector rotation and security selection as well as diversification as part of a broader portfolio.
  • We believe that MAC portfolios should not simply invest in the highest‑yielding opportunities but should focus on harnessing credit market inefficiencies.

The market turmoil of March 2020 demonstrated that volatility often creates market inefficiencies, and harnessing these dislocations in credit markets requires a combination of tactical and demonstrated global analytical capabilities. While many of the initial market dislocations generated by the onset of the coronavirus pandemic have dissipated, we anticipate that the ongoing volatility and uncertainty will create longer‑term opportunities for multi‑asset credit (MAC) investors.

MAC portfolios can offer the potential to capture alpha1 through sector rotation and security selection as well as diversification2 benefits as part of a broader portfolio. MAC portfolios can be designed to pursue various return and risk objectives for adroit managers who have the depth and breadth of global credit capabilities. In the current volatile, low‑yield fixed income environment, investors may benefit from a more opportunistic, dislocation‑oriented MAC portfolio in terms of risk level.

The investible universe for MAC portfolios is about USD 22 trillion across the range of global credit sectors, providing the flexibility to make sizable, high‑conviction allocations to sectors that offer value relative to other segments, or that appear to have prices that do not align with their fundamentals.

Search for Total Return and Income in Low‑Yield Environment

With interest rates likely to remain at low levels for the foreseeable future, the search for total return and income from a fixed income allocation has become a top priority for many investors. MAC strategies that allow investors to target higher fixed income returns with lower volatility—albeit with higher credit risk—are in demand. The unprecedented amount of global stimulus in response to the pandemic will likely affect different credit sectors, industries, and issuers in different ways, creating an ideal environment for a strategy designed to harness dislocations.

Sector‑Specific Knowledge Is Essential

The key for pursuing alpha in a MAC portfolio is expertise in fixed income sectors, such as high yield, leveraged loans, investment‑grade corporate, securitized,3 convertible, and emerging markets credit securities. A MAC portfolio requires strong, fundamental credit analysis for effective security selection within the sectors, allowing managers to recognize and have exposure to names that are priced inefficiently. Particularly when investing in high yield, emerging market, and securitized sectors, we believe rigorous credit analysis is essential for selecting credits that are more likely to avoid default over the investment time horizon.

Sector‑specific knowledge is also essential for recognizing dislocations and relative value among those segments. This allows MAC portfolio managers to tactically rotate exposures to credit sectors that are dislocated or that offer compelling relative value or attractive absolute value as markets fluctuate.

USD 22 trillion

Size of investible universe for MAC portfolios

Robust quantitative capabilities are a key component of MAC portfolio efficiency enhancement. Tools such as quantitative analysis across various market scenarios can create more risk‑aware portfolio construction, assist portfolio managers with timely sector shifts, and keep overall portfolio risk within desired parameters.

MAC Return Objective

Typically, the longer‑term goal of MAC portfolios is aiming to harvest attractive risk‑adjusted returns across a range of fixed income credit markets and instruments. In the current environment of elevated volatility and dislocations across sectors, we believe that MAC portfolios may have the potential to deliver equity‑like returns with lower volatility.

The T. Rowe Price Dynamic Credit Fund is an example of a MAC strategy. In our MAC portfolios, we do not simply invest in the highest‑yielding—and riskiest—sectors and issuers. Rather, we focus on finding and harnessing inefficiencies across credit markets that ultimately can deliver more optimal outcomes. T. Rowe Price already offers strategies specializing in key credit sectors, giving us the ability to leverage our extensive experience in credit and equity analysis to manage portfolios across sectors and regions.

Close Collaboration Characterizes T. Rowe Price MAC Capability

T. Rowe Price’s global fundamental research platform is at the core of our MAC capability. The close collaboration among T. Rowe Price’s global credit, equity, and quantitative analysts enables our MAC capabilities to try to take advantage of credit market dislocations like those created by the market turmoil in March 2020. We empower and encourage our analysts to think as investors and to provide conviction ratings on their ideas.

We believe that there are two key components of MAC alpha generation. The first is credit selection at the issue level. The second is the flexibility to rotate among credit sectors and subsectors to source relative value opportunities while also providing portfolio diversification benefits.

Extensive Application of Quantitative Tools

The MAC team and our credit analysts work closely with our quantitative analysts, using proprietary tools to screen for relative value at the sector, industry, rating class, issuer, and security levels. The quantitative team also provides insight for enhancing optimal sector allocations and general portfolio construction, including developing return and risk expectations, measuring factor exposures, creating risk scenarios, and assessing portfolio liquidity. This work is also essential to portfolio risk management.


Look for our upcoming series of monthly Insights detailing our views on particular credit sectors.

1 Alpha is the excess return of an investment relative to its benchmark.

2 Diversification cannot assure a profit or protect against loss in a declining market.

3 Securitized credit includes non‑agency mortgage‑backed securities (RMBS), commercial mortgage‑backed securities (CMBS), asset‑backed securities (ABS), collateralized loan obligations (CLOs), and enhanced equipment trust certificates (EETCs).

Additional Disclosures

© 2020 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2020, J.P. Morgan Chase & Co. All rights reserved.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.


Important Information

Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information you should read and consider carefully before investing.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of September 2020 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates. Debt securities could suffer an adverse change in financial condition due to ratings downgrade or default which may affect the value of an investment. Fixed‑income securities are subject to credit risk, liquidity risk, call risk, and interest‑rate risk. As interest rates rise, bond prices generally fall. Investments in high‑yield bonds involve greater risk of price volatility, illiquidity, and default than higher‑rated debt securities. Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. Mortgage‑backed securities are subject to credit risk, interest‑rate risk, prepayment risk, and extension risk. International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets.  Derivatives may be riskier or more volatile than other types of investments because they are generally more sensitive to changes in market or economic conditions; risks include currency risk, leverage risk, liquidity risk, index risk, pricing risk, and counterparty risk.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

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