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Why multi-asset credit offers value in troubled markets

Mar 31, 2025

Multi-asset credit represents an interesting investment opportunity in today’s environment, with global geopolitics and inflationary concerns making European credit a potentially attractive choice, says Richard Ryan at M&G Investments.

Why multi-asset credit offers value in troubled markets

This year began with rising geopolitical tensions, tariffs and concerns about inflation, indicating numerous potential drivers of volatility on the horizon. Further, spread compression and uniformly expensive credit markets in 2024 have resulted in an absence of compelling investment opportunities.

M&G Investments’ Richard Ryan sees things a bit differently. Following the firm’s bottom-up and value-based investment approach and managing a $16 billion multi-asset credit strategy that aims to minimise interest rate risk (with duration close to zero), he explains to AsianInvestor how and where to find attractive opportunities regardless of markets, sectors and issuers.

AsianInvestor (AI): What impact could the Trump 2.0 administration, especially its trade tariffs, have on inflation, and therefore on the monetary policies of the Federal Reserve and European Central Bank?

Richard Ryan (RR): We are at an early stage of ‘Trump 2.0’, but trade tariffs have been announced, implemented and suspended. We know this has created uncertainty in the market – with added unpredictability coming from possible retaliation in response to 25% tariffs on goods imported from Canada and Mexico into the US.

Tariffs are generally seen as inflationary, though whether this is transitory or has more lasting effects remains to be seen. Regardless of the duration, any inflationary pressure could influence monetary policy in the US, potentially leading to a slower rate of easing than forecast. In turn, this could affect global financial conditions, including those in European credit markets.

In summary, tariffs and their subsequent economic impacts could create a complex environment for both US and European companies, with potentially vastly different impacts on similar issuers. We believe this complexity, when combined with our experienced and comprehensive credit research capabilities, has the potential to generate attractive investment opportunities in European credit markets.

AI: Given tight and low credit spreads, where do you see the best sector opportunities?

RR: As value-based investors, we seek to identify attractive opportunities where the price and fundamental credit risks of a security are misaligned. As the price of a security rallies over time towards its fair value, or becomes overvalued, we will look to sell. We then reinvest the proceeds in other attractive opportunities – but if none are readily apparent, we will hold liquid defensive assets such as cash, money market funds, T-Bills, short-dated government bonds and AAA rated ABS/RMBS until opportunities emerge. In the absence of compelling opportunities, we will not chase marginal ones.

In today’s market, although the attractiveness of financials has somewhat diminished compared with 12 to 24 months ago, we still see value in this sector, particularly within banks. Currently, we tend to prefer the senior part of banks’ capital structure; it offers increased protection against market volatility for a small reduction in spread versus junior paper.

Additionally, while the real estate sector as a whole has become less attractive, there are still selective opportunities within REITs. Single-name opportunities present potential for strong performance, especially in well-managed entities with robust asset portfolios and strategic market positioning.

AI: Geographically, why do you prefer European over US credit?

RR: Firstly, European credit continues to trade at a higher spread compared with US credit. This differential offers attractive yield opportunities for investors seeking enhanced returns in a relatively stable credit environment.

Moreover, European credit serves as a valuable global diversifier. Despite its potential, it remains internationally under-invested. Consequently, this provides an opportunity for investors to gain exposure to a market where demand/supply dynamics are more in favour of investors.

Finally, while the US credit markets are known for their liquidity, efficiency and uniformity, the European credit market presents a different landscape. Europe is characterised by its fragmentation, with one monetary policy governing 22 nations, each with its own fiscal rules and regulatory frameworks. This diversity can create unique investment opportunities, as discrepancies and inefficiencies across national markets can be leveraged by astute investors to achieve superior returns.

AI: How can the M&G Multi-Asset Credit strategy capitalise on current market dynamics?

RR: The strategy follows a value based, bottom-up, unconstrained approach to multi-asset credit with a performance target of cash+ 3% to 5% per annum, gross of fees over a cycle. The opportunity set is broad with access to public credit markets including investment grade (IG), high yield (HY) and asset-backed securities (ABS). The strategy does not invest in local currency emerging market debt. Notably, HY is generally limited to less than 50%, which has resulted in the strategy maintaining an average IG rating since inception.

The strategy is credit focused while minimising interest rate and FX exposure, and we do not take any active duration and currency risk.

Further, diversification is used as a key risk management tool to reduce downside exposure and volatility (currently around 550 issues). In aggregate, we think these features results in the strategy being an attractive risk and style diversifier.

AI: Despite credit spread compression in 2024, your strategy has recorded significantly positive performance. What have been the main drivers?

RR: Financials and real estate have been the primary drivers of performance, where higher beta sectors have outperformed as credit spreads compressed across rating bands and capital structures. However, true to our value-based, bottom up approach, we have used this market strength to further de-risk where spreads are approaching historical tights, patiently waiting for opportunities to arise.

All said, the evolving global landscape – shaped by trade policies, inflationary pressures and diverging monetary policies – continues to create a complex environment for credit markets. However, with this complexity comes opportunity.

With deep credit research capabilities and a disciplined, value-based approach, we seek to identify and capitalise on market inefficiencies, positioning the portfolio for attractive risk-adjusted returns with minimal interest rate risk.

To find out more about M&G Investments' multi-asset credit capabilities, connect with us at [email protected], and follow us on LinkedIn or our Bond Vigilantes blog to receive more insights.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.

For Institutional Investors in Singapore and Professional Investors in Hong Kong only. Not for onward distribution. No other persons should rely on any information contained within.

In Hong Kong, this material is issued by M&G Investments (Hong Kong) Limited., and in Singapore, by M&G Investments (Singapore) Pte. Ltd. (UEN 201131425R), regulated by the Monetary Authority of Singapore. All forms of investments carry risks. Such investments may not be suitable for everyone. The information contained herein is provided for information purposes only and does not constitute an offer of, or solicitation for, a purchase or sale of any investment product or class of investment products, and should not be relied upon as financial advice. The contents of this document have not been reviewed by any regulatory authority in Hong Kong or Singapore.