< The 2014 All-Europe Fixed-Income Research Team
Repeating in second place are Alberto Gallo and his seven teammates in London and Mumbai. The Royal Bank of Scotland strategists, who also capture a runner-up position in High-Yield Strategy, are broadly upbeat this year. They anticipate a full regional recovery and 1 percent growth in the euro area, led by Germany in the core and Spain in the periphery. “Europe still offers the most value in global fixed income,” asserts London-based Gallo. His team forecasts that added banking system transparency from stress tests and the European Central Bank’s asset-quality review will lead to greater investment activity and growth in credit markets, though inflation will remain contained. Yields are projected to stay low, and the continuation of quantitative-easing policies will result in asset overvaluation in some segments. Finally, the analysts expect spreads to tighten but returns to be modest, at 2 percent in investment grade and 5 percent for high-yield bonds. “Some of these positive actions have been already priced in during what we called a ‘melt-up,’” notes Gallo, “but fundamentals are still improving.” Given this environment, they are long periphery and short core, preferring high yield over investment grade. They recommend in particular subordinated debt issued by banks in semicore countries as well as corporate hybrids. The crew’s “soup-to-nuts, macro-to-micro approach,” one enthusiast says, is “unique in the market and the most effective research for fixed-income investors.” |