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Beyond Stocks: The Allure and Strategy of Credit Investments

Oct 18, 2023

Exploring the impact of Howard Marks on investing strategy, analyzing default rates for non-investment grade bonds and bank loans, allocation of risky assets, advantages and types of preferred stocks, strategies for investing in credit instruments, the allure and risks of credit investments, and the intricacies of closed-end funds.

29:48

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Quick takeaways

Investing in non-investment grade bonds, leveraged loans, and preferred stocks can be more compelling than investing in common stocks.

Understanding the contractual agreements and attributes of preferred equity can give them an advantage over common stocks.

Deep dives

The Allure and Strategy of Credit Investments

In this podcast episode, the host explores the allure and strategy of credit investments. He highlights the importance of understanding investment conditions, expected returns, valuations, and yields on bonds and other credit instruments. The discussion focuses on three types of credit instruments: non-investment grade bonds, leverage loans, and preferred stock. The host emphasizes the contractual nature of credit instruments, where returns are primarily driven by contractual agreements between investors and borrowers. He discusses the potential risks and rewards of investing in these instruments, including default rates, recovery rates, and historical performance. The episode also explores different ways to invest in credit instruments, such as through passive index funds, actively managed funds, individual securities, or closed-end funds.

Introduction

3min

Exploring Credit Investments and the Power of Contractual Agreements

3min

Analyzing Default Rates and Digital Privacy Protection

2min

Allocation of Risky Assets and Investment Strategies

9min

Advantages and Types of Preferred Stocks

6min

Investing in Credit Instruments: Strategies and Considerations

7min

Investing in Credit Instruments: Exploring the Attractiveness and Risks

3min

Why investing in non-investment grade bonds, leveraged loans, and preferred stocks is potentially more compelling than investing in common stocks at present.

Topics covered include:

Why Howard Marks told institutional clients to sell stocks and buy high-yield bonds instead
The contractual agreements comprising bonds, leveraged loans, and preferred stock give them an advantage relative to common stocks
How preferred equity exhibits attributes of both bonds and common stocks
What is the expected return and risks for high-yield bonds, leveraged loans, and preferred stock
How do we invest in these three asset types

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Show Notes

Sea Change - Memo by Howard Marks

Further Thoughts on Sea Change - Memo by Howard Marks

Investments Mentioned

SPDR Bloomberg High Yield Bond ETF (JNK)

iShares iBoxx High Yield Corporate Bond ETF (HYG)

Invesco Senior Loan ETF (BKLN)

iShares Preferred Stock ETF (PFF)

Virtus Seix Senior Loan ETF (SEIX)