Press Release
KKR Releases Mid-Year Macro Outlook Report
June 20, 2019Henry McVey Believes Investors Should “Stick to the Plan” in a Volatile Market
“With all the geopolitical ‘noise’ swirling around these days, there is a growing propensity in the investment community to react quickly to near-term news flows, or even head to the sidelines until there is greater visibility. Our view: stick to the plan,”
In his latest report, McVey emphasizes that while overall portfolio risks are higher these days, low-rates, de-levered financial institutions and accommodative central banks should help to prevent a 2007-type downturn. Therefore, he advocates:
- Owning more cash-flowing assets linked to nominal GDP;
- Favoring more Opportunistic Credit and Special Situations strategies that have the flexibility to lean into dislocations;
- Embracing complexity through a variety of investment disciplines, including Energy, Private Equity, Real Estate and Infrastructure; and
- Remaining overweight the short-end of the interest rate curve, as he sees more room for yield compression.
McVey and his team outline the following key themes influencing their thinking for the second half of 2019 and beyond:
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Remain bullish on deconglomeratization, or carve-outs. Complexity associated with large corporate multinationals divesting non-core subsidiaries is substantial, but carve-outs often have the potential to unlock significant value, particularly as it relates to cash flow generation. |
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The ‘Yearn for Yield’ underscores the structural reinvestment risk that has emerged for income-oriented investors. Own more cash-flowing assets linked to nominal GDP, build more flexibility across mandates, and shorten duration where appropriate. |
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Lean into periodic dislocations and growing dispersions. The capital markets are increasingly giving investors multiple opportunities to lean into dislocation to buy mispriced assets. The recent increase in dispersions should be an additional tailwind to this theme. |
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Own secular growth stories that are ‘Cash Flow Compounders’ amidst slowing nominal GDP. With China’s nominal GDP falling, overall nominal GDP growth has suffered mightily. In this environment we think that more investors will migrate towards secular growth stories where there is a meaningful potential for cash flow to compound. |
The report also details the GMAA team’s updated asset allocation positions, as well as their key calls for the remainder of the year, including: the potential for the Fed cutting rates twice, a more conservative multiple for the S&P 500 relative to current real rate environment, and a greater than 50% chance that
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About
About KKR
KKR is a leading global investment firm that manages multiple alternative asset classes, including private equity, energy, infrastructure, real estate and credit, with strategic partners that manage hedge funds. KKR aims to generate attractive investment returns for its fund investors by following a patient and disciplined investment approach, employing world-class people, and driving growth and value creation with KKR portfolio companies. KKR invests its own capital alongside the capital it manages for fund investors and provides financing solutions and investment opportunities through its capital markets business. References to KKR’s investments may include the activities of its sponsored funds. For additional information about
The views expressed in the report and summarized herein are the personal views of
View source version on businesswire.com: https://www.businesswire.com/news/home/20190620005153/en/
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