High Yield Returns In A Difficult Credit Market

Finding high yield investing opportunities in the current credit market might be a challenge for some. Dan Zwirn, CEO and CIO of Arena Investors, joined Ed Harrison, Real Vision Managing Editor, outlines where to maximize returns.

Real Yield in Real Estate

The housing market began to heat up in 2020 as city dwelling residents began seeking more room and first-time home buying opportunities. Investing in real estate is not without risks, however as evidenced by the struggles that have emerged in commercial real estate. Interestingly, it is a subset of commercial real estate that Zwirn feels is one of the best investing opportunities.

“I would try to do things, depending on the levels, of, for instance, owning a multifamily apartment,” Zwirn explained. “I think people are going to have to think about how bad it is to own these dollars, euros and yen because your money is losing value every day.”

Multifamily homes

Caution with Fixed Income

The search for yield stretches across multiple industries. Zwirn notes that the biggest institutions –  jurors, pensions, endowments, insurance, among others – are urgently seeking yield bearing instruments to meet their obligations.  That is causing problems in the markets. 

“For better or worse, we find ourselves in a position where anything touching investment-grade risk has developed into this — or seeing this unique phenomenon of what we call, basically, liquidity with insolvency.”

Zwirn cautions investors who are looking to play in this space. Since the start of COVID people are buying yield instruments simply with the expectation that there will be another party to buy. Temporarily, “direct intrusion on the markets by monetary authorities” has created an abnormal market. That could change leaving investors in an unfavorable situation.

Focus on Fundamentals

Pick investments with strong fundamentals tends to be casual advice. Zwirn explains that in an environment with mountains of liquidity because of plentiful stimulus, but companies eventually facing solvency problems, finding the strongest companies requires doing your homework. 

“We’re looking at things like e-commerce and life sciences, where there are wonderful businesses that are maybe less understood only because the nature of their business has arisen perhaps in the last few years.”

Zwirn does offer a grim word of caution. Until COVID 19 is under control and the newest variant does not turn out to be the next virus, vigilance is essential to protecting capital. 


For more content on high-yield, check out some of our other videos with Steven Van Metre, Jeffrey Gundlach and more.

RELATED CATEGORIES: Bonds, Housing Market

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