How to avoid credit investing mistakes as rates rise, crises escalate

“Get back to basics” and “Don’t make mistakes” – easily said, often difficult in practise. But they're key for credit investors seeking to navigate the current market volatility.

Against the backdrop of geopolitical and economic upheaval fuelled by the war in Ukraine and rising inflation, the US Federal Reserve has lifted rates for the first time since 2018: “Many things are changing but some things aren’t,” said Teiki Benveniste, head of Ares Australia Management.

“Don’t make credit mistakes and minimise defaults in your book of credit assets. And if you can’t avoid them, get as much capital back as you can,” he says.

What’s changing? We’re seeing wider dispersion between fixed-rate, floating-rate, liquid and illiquid, and investment-grade and sub-investment-grade credit asset classes, says Benveniste.

What’s not changing? He doesn’t expect a rush of defaults or a broad-based selloff in credit and views the fundamentals as sound, particularly in the US, where corporate balance sheets are strong and unemployment is at historic lows.

In the following interview, Benveniste explains what the above dynamics mean and how to optimise your fixed-income exposures in this environment.

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To learn more about how Ares Australia Management navigates inefficiencies in the market to generate attractive, income-producing portfolios, please visit the asset manager's website.

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