Issue link: https://info.seic.com/i/1495701
10 INVESTMENT THEMES FOR 2023 · 9 130 335 Investment-grade industry spread dispersion as of 12/31/22 (bps) Average Banking Consumer non-cyclical Technology Communications Electric Energy Capital goods Insurance 0 –100 200 400 600 100 300 500 Yield spreads (bps) 0 500 1,000 Range since 2010 Investment-grade corporates High-yield corporates Emerging markets debt Securitized 469 12/31/22 452 Consumer cyclical Damien McCann is a fi xed income portfolio manager with 23 years of experience. He is a manager for American Funds® Multi-Sector Income Fund. Credit fundamentals may soon be back in the driver's seat as infl ation cools and rate hikes slow. While consistent cash fl ows and strong balance sheets are always important, they become essential during periods of falling growth when corporate bonds are often impacted unevenly across industries and asset classes. Our analysts are focused on identifying companies that can deftly navigate such an environment. For bond investors, fi nding companies that are inventing the next big thing is less important than determining if they can meet their debt obligations. For example, established social media companies may be facing stiff competition for younger users, but they are also very creditworthy when measured by profi tability, free cash fl ow and relatively low debt levels. Today's starting yields for higher income bond sectors such as investment grade, high yield, emerging markets and securitized debt offer attractive entry points for long-term investors. The total return opportunity is also more appealing compared to recent years, as these higher yields may help buffer bond market volatility. Spreads for investment-grade (rated BBB/Baa and higher) and high-yield corporate bonds may not scream "buy," but our analysts are fi nding attractive valuations in select issuers and industries. 8. Credit comeback Credit fundamentals vary greatly across individual industries and issuers Sources: Bloomberg Index Services Ltd., JP Morgan. Left chart is as of 12/31/22. Indexes used are Bloomberg U.S. Corporate Investment Grade Index, Bloomberg U.S. Corporate High Yield Index, J.P. Morgan — EMBI Diversifi ed Index and Bloomberg U.S. CMBS ex AAA Index, respectively. Right chart is as of 12/31/22. Represents the top nine industries by market value within the Bloomberg U.S. Corporate Investment Grade Index. Spreads shown are option-adjusted spreads (OAS), which is the measurement of the difference between the yields of a fi xed income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.