WHY CREDIT NEEDS TO CHANGE
Legacy fixed income allocations held by many investors largely mirror benchmark composition and duration exposure. Inaction under these circumstances leaves portfolios vulnerable to interest rate shocks and insufficiently diversified against shifting correlations.
Today’s evolving environment requires income portfolios to employ a more varied mix of credit exposures. That means investors need to consider diversification among income sources to be just as important as the level of income their portfolios generate.
Rising Correlations Highlight Value of Differentiated Strategies
- Russia–Ukraine Shock
- Global Monetary Policy Tightening Cycle
Past performance is not a guarantee or a reliable indicator of future results. Sources: PGIM, Bloomberg, JP Morgan, S&P. Monthly data as of March 2026.
PORTFOLIO BUILDING BLOCKS
A more resilient approach to income brings together credit strategies with different roles within the portfolio, helping reduce reliance on a single market outcome.
Whether accessed through specialised strategies or a single multi-sector approach, diversifying sources of credit return can help improve income durability and portfolio resilience.
IMPLICATIONS FOR INCOME PORTFOLIOS
Blending differentiated credit strategies can help portfolios:
- Generate more stable income across market regimes
- Reduce dependence on interest‑rate movements for returns
- Improve diversification across underlying risk drivers
- Enhance resilience during periods of heightened volatility
This approach supports a move away from static, benchmark‑led credit allocations toward a more outcome‑oriented use of credit within wealth portfolios.
COMBINING INCOME ENGINES IMPROVES PORTFOLIO EFFICIENCY
5-Year Period
The unconstrained frontier shown is theoretical and represents an optimised set of portfolios without practical implementation constraints.
Sources: PGIM, Bloomberg, JP Morgan, S&P. Monthly data as of March 2026. Past performance is not a guarantee or a reliable indicator of future results. Global AAA CLO: 50% JPM US CLOIE AAA / 50% Euro CLOIE AAA (USD equivalent), using a blended EUR/USD CLO index as a proxy.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
