Taking Advantage of Oil Worries in Global Fixed Income

0:00All right, move on and joining us now is Anisha Goodley, co-head of Fixed Income Portfolio Specialists at TCW. Anisha, so nice of you to join us. Thanks so much for joining the program today on what is a very fluid situation. I'm just wondering what is the most important thing you're paying attention to on the screen right now? So many things, and first of all, thank you so much for having me. It's been quite, you know, headline-driven and volatile over this past week. And so there are a number of things that we're looking at. Of course, on the market side, we are looking at oil and the follow-on effects in terms of the rates move. Inflation concerns, the potential for weaker growth down the line. But back to your original question, there's uncertainty around the duration of the war and the extent to which we could potentially have an energy supply shock. So we're paying a lot of attention to what's coming out of the administration. We are certainly paying attention to a lot to the various headlines that are coming through. And we're working through the different scenarios from here, which we can spend some time on.

1:01Yeah, let's just talk about exactly what you're modeling here, because I suppose as far as the markets are concerned, we are looking for any degree of short-term demand destruction that could have an impact to overall consumption habits. We've obviously seen that first and foremost in the airlines and the cruise lines. And, you know, when this obviously starts to become a growth problem and also a threat to margins as well, with some of those higher input prices and a pullback in demand. Yeah, I think you're really pointing to is the differentiation that this creates within the market. And so at TCW, we manage around 170 billion of fixed income across the board globally. And so every single investment team is looking through their space, whether it's credit or securities or rates or emerging markets, thinking through where these opportunities. And so what the market, you know, in our view, is really trying to determine and adjusting to. And we're seeing these pretty volatile moves in the last few days in particular is what is the duration of this war? How long is it going to last? We're seeing a relief rally this morning, as we've seen comments out of the administration that this could be over soon.

2:06And then it really becomes, if we think about just the oil supply shock, we've got the straight up more moves, which is one of the most important shipping routes in the world. It has 25% of global oil seed borne trade, 20% of LNG. And so pretty significant and important route. And what the market is really trying to understand, and what we're working through in terms of different scenarios, when we're looking at every single issuer and credit in our portfolios, is really thinking through, okay, it's not necessarily just the fact that let's say oil can't get through, but we're also seeing production cuts in various countries. And when you have production cuts, you can't necessarily just turn it right back on. It's not just like flipping a light switch. And so what are the overall impacts? What you're seeing is that, and if you just break it down, is energy importers are being more and so than energy exporters understandably in this market. And so what we're looking through and the teams are all focused on, and we can talk through some ideas, is where are we seeing some value being created? Because historically, what you see is that geopolitical risk tends to be short lived,

3:10and this creates opportunities as well. So really disaggregating, okay, what is a real chance of trade shock, and what may have just sold off along with the market, and where can we add some value opportunities to the portfolios? Yeah, so where would you be looking for some of those opportunities right now? Of course, it's really possible. And so what you've seen, so let's go back to what you were saying in terms of, you know, growth and inflation concerns. And so what you've seen in, you know, one of the outside of oil, you've seen a backup in government bonds, and sorry, again, to see that retrace this morning, Europe in particular has been hit as in that energy in order. And so what one of the, one of the things that we've seen in the rates market, for example, is that rate cuts are getting priced out on this, on these concerns of higher inflation, potential weaker consumer confidence. So for example, in the UK, where the markets are effectively pricing in a hike, and we actually think the bar for that is quite high, that the economy is weakening. And so we're taking advantage of those moves and duration in emerging markets, what you've seen is a broad sell-off in FX. And so there are certain countries, including in Europe,

4:11but also in Latin America, they're quite shielded. We think in Latin America that are a bit more shielded from this shock. And so we're taking advantage there as well. And so similarly in the credit space, adding some names that are more shielded again from the energy shock. We overall, in fixing her than underweight credit, we've been defensive at these overall credit spreads. But something that we're, you know, on the TCW said that we're quite known for is taking advantage of these periods of volatility and so when we see these moves, we are looking to take advantage again of where we've like, names that we'd like and where we can add some exposure. Okay, yeah, okay. Well, I mean, obviously looking for some opportunities in global fixed income makes sense given the moves we've heard, particularly seen as you mentioned in the guild's market as well. And each of we have to wrap it up there. Thank you so much for your time today. Really appreciate the insights and where we can find some of these opportunities right now. And each of goodly go ahead of fixed income portfolio specialists at TCW.