Home Insights Macro views Navigating opportunities in a higher-for-longer market

Navigating opportunities in a higher-for-longer market

March 18, 2025 | 4 min read
Seema Shah
Chief Global Strategist
Michael Goosay
Chief Investment Officer, Global Fixed Income
Sarah Radecki, CFA
Co-Chief Investment Officer, Portfolio Manager, Principal Edge
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Seema Shah headshot
Seema Shah
Chief Global Strategist

Today’s macro landscape has entered a particularly volatile phase, with geopolitical pressures and swift policy shifts creating uncertainty and a challenging investing environment. In this unsettling time, investors need to take a strategic and dynamic approach to income generation, balancing yield opportunities with inflation resilience and diversification. With real rates remaining elevated, reflecting impressive productivity gains in recent years, and inflation showing signs of persistence amidst global tariff threats, income investors should prioritize assets that offer inflation-adjusted income streams. This means looking beyond traditional fixed income to areas like dividend growth equities, real assets, and floating-rate securities that can adapt to changing rate environments.

Additionally, after years of ultra-low yields, recent years of central bank tightening means that fixed income has re-emerged as a compelling source of income, particularly in high-quality corporate bonds, municipal bonds, and select areas of structured credit. Investors are once again able to target high-quality parts of the market that offer downside risk mitigation but also generate an attractive income stream.

Fixed income credit spreads are indeed near historic tights and capital appreciation may be hard to come by. Yet, the higher-for-longer rate environment means investors can now lock in attractive yields without taking excessive credit risk. While chasing yield can be tempting, downside economic risks imply that credit quality, duration exposure, and liquidity should remain top of mind. With central banks still navigating inflation risks and potential economic slowdowns, a well-balanced income-centric portfolio should emphasize resilience and flexibility.

 

Fixed Income

Michael Goosay headshot
Michael Goosay
Chief Investment Officer, Global Fixed Income

The age-old idiom suggests that death and taxes are the only certainties in life. But a third “certainty” should be included on that list (at least for investors): the need for income. Depending on the market environment, that need can be challenging to satisfy. Today’s environment, however, is a moment ripe with opportunities to enhance and diversify income across a range of asset types.

The Fed’s efforts in recent years to curtail rising inflation – against a relatively healthy economic backdrop – have led yields (or “income”) to rise across Treasury and credit curves. This has afforded investors a unique opportunity to increase their income without taking on notable risk through cash and cash equivalent type instruments (e.g., money market funds, T-Bills, CDs, etc.). Although yields on cash and cash equivalents remain attractive today, now is the time for investors – especially longer-term investors – to immunize reinvestment risk and lock in attractive starting yields offered across a range of fixed income assets with longer duration profiles.

One sector where this opportunity is starkly evident is U.S. high yield, where yields sit near 7.5% (as of March 12 , Bloomberg U.S. High Yield – 2% Constrained Index). Although the high yield asset class does carry risk and valuations today are rich, the underlying fundamental strength and technical support for the asset class are impressive and show no signs of erosion.

An alternative option for income-seeking investors today includes emerging market debt, which currently offers attractive yields of around 7-8%, supported by easing inflation and strengthening economic growth.

 

Equities

Sarah Radecki headshot
Sarah Radecki
Portfolio Manager, Equities

Moving into 2025, investors need to be prepared for headwinds, tailwinds, and crosswinds that will cause performance of individual companies to increasingly diverge. Following two years of very strong market performance, it can be easy to lose sight of the purpose of the stock market. That purpose is to give individuals the ability to own a piece of a business while providing the company with capital needed to grow, so its management team can return capital to shareholders.

While money can be made treating the market like a casino, the best returns over time come from the compounding of high quality, cash generating businesses that are competitively advantaged. With valuations higher and uncertainty prevalent, deep fundamental research and long-term investing in quality, dividend-paying businesses is likely to be among the best bets an investor can make. One measure of quality is a company’s ability to sustainably generate free cash flow and return that cash to shareholders via a regularly increasing dividend. This increasing income stream provides investors stability, but also a “rising paycheck” over time.

With equity market valuations elevated, finding companies with strong balance sheets that can grow revenues, earnings and ultimately dividends is crucial. While reading balance sheets is a relatively straightforward approach to identifying such opportunities, investors should keep in mind that what is considered strong for one company, may not be considered strong for another. Monitoring dividend payout ratios is also important because the combination of a strong balance sheet and well covered dividend can be a safe harbor in equity market storm. In fact, in addition to providing investors with rising income, companies that have consistently raised their dividends have been some of the best performing stocks over long periods of time.

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Disclosure

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Risk considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Inflation and other economic cycles and conditions are difficult to predict and there Is no guarantee that any inflation mitigation/protection strategy will be successful. Asset allocation and diversification do not ensure a profit or protect against a loss. Fixed income investment options are subject to interest rate risk, and their value will decline as interest rates rise. Lower-rated securities are subject to additional credit and default risk. Equity investments involve greater risk, including heightened volatility, than fixed income investments. Small and mid-cap stocks may have additional risks, including greater price volatility. Dividends are not guaranteed. Emerging market debt may be subject to heightened default and liquidity risk.

Important information
This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. Information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account. Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided.

This material may contain ‘forward‐looking’ information that is not purely historical in nature and may include, among other things, projections, and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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