Jeff Hudson, partner of alternatives-focused RIA firm Cedar Ridge Partners, says in this volatile environment there’s opportunities for investors in fixed income — specifically long-short credit.
Cedar Ridge Partners works exclusively in US long-short credit, running two hedge funds (one long credit, one long-short), some separately managed accounts (SMAs) and a flagship 40 Act mutual fund (CRUMX). The firm invests in municipals, corporates, distressed debt, and US Treasury bonds.
Traditionally, credit isn’t the place where investors seeking big returns rush to put their money. Hudson is starting to see investors develop more of an appetite.
“The biggest issue now is volatility — and some of the interesting things that are going on in the world right now are causing that asset class to be quite volatile. That volatility brings opportunity. That opportunity is what we think our investors want us to take advantage of. And I think that’s been missed over the last couple of years — everybody’s been focused on the equities space.”
The volatility creates an opportunity for investors to take both sides of the trade using a long-short credit strategy.
Cedar Ridge’s long book is make up of things they like, while the short book might be the firm taking a bet against a company that they might not like or shorting US Treasuries as a way to hedge interest rates going higher.
Traditionally, fixed income is thought of as the sleepy part of an investors portfolio. Going forward though, Hudson sees this as being much more actively managed.
“The important part for people and investors to take way from this discussion is there’s going to be volatility in an asset class that didn’t have volatility, so they should expect volatility. Volatility is going to give opportunity, but it’s also going to give some concern. Because again … fixed income has always been really sleepy. People tend to go to sleep when they talk about fixed income. In this country we taught everyone the hottest equity, the hottest stocks, all the rest of that and they let their muni book or their treasury book be sleepy money and it’s a sleepy asset class. That’s all changed.”
Bottom line: There’s going to be volatility — both good and bad.
Julia La Roche is a finance reporter at Yahoo Finance.