What's in the news:
With President Trump in office now for a little over a month, many are waiting anxiously for news relating to his promise of tax reform and what may come of the proposal drafted last summer by House Republicans. The proposal focuses on:
- Eliminating the tax on foreign income and only taxing US companies on goods imported to the US, meaning companies could repatriate future profits earned overseas penalty free
- Implementing a tax of 8.75% on uninvested profits sitting overseas
After years in a low interest rate environment, the corporate bond market has been an access point for income oriented investors. If companies could repatriate future profits earned overseas at no cost, that cash could be used to pay for future investments rather than funding them with debt. Another unintended consequence could also be that more corporations favor stock buybacks rather than dividend increases to shareholders.
The chart below shows US investment grade corporate bond issuance since 1996. Investment grade corporate bond issuance has been trending higher since the financial crisis of '08. If an issuance slowdown does occur, the results could be a rally in corporate bond buying and income-oriented investors turning to riskier assets for yield.
US Investment Grade Corporate Bond Issuance (1996 - 2016)
Source: WSJ, Securities Industry and Financial Markets Association
What are we thinking?
Are you positioned to monitor the fixed income landscape? With the possibility of the US investment grade corporate bond market shrinking and the other market uncertainties, we believe that active bond management is prudent. If you are considering fixed income in an asset allocation remember that our Current Income Portfolio is structured to benefit from a rising rate environment while also providing high levels of income to investors in low rate environments.
This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.
Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.
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