Financial markets and the broader economy have undergone significant change, just in the last year. A dovish pivot by central banks, a stark contrast in the performance of major economies, and the still-unfolding impact of elections across the globe—punctuated by the US presidential race—have contributed to an outlook that remains in flux. With uncertainty a constant presence in the investment environment, investors will be challenged to look beyond today’s macro volatility for long-term opportunities.
PGIM brought together experts from its affiliates to explore some of the opportunities featured in our 2025 Best Ideas report, which offers a collection of strategies to help investors pursue more resilient portfolios. In this webinar, our experts discuss AAA CLO ETFs, emerging market equities, and non-sponsored direct lending, among other topics. The following is a summary of the discussion.
- AAA CLO ETFs: Current all-in yields could provide an attractive entry point for fixed income globally. Specifically, investors are increasingly using AAA CLOs as a key building block in their portfolios as they not only provide high quality carry, but also improve diversification. Hence, we have seen greater investor adoption amid growth in ETFs. However, not all AAA CLO ETFs are created equal, as these are actively managed products and portfolios vary a great deal in credit quality and liquidity. Variations in portfolio construction could lead to dispersion in performance among AAA CLO ETFs, especially during times of market stress. It is thus important for investors to seek out managers with strong CLO research and credit capabilities. With the right approach, AAA CLO ETFs could help a portfolio weather economic downturns through a cycle.
- Middle-market lending: As commercial banks pull back amid regulatory pressure, direct lenders are filling a void in lending markets. Much of this private capital has flowed to private equity-backed—or sponsored—companies, even though 90% of middle-market companies are family-owned, non-sponsored businesses. Moving into the non-sponsored market could provide investors with enhanced diversification through a broader range of deals and greater deal flow. Lenders with an expansive network, including strong relationships with borrowers and a boots-on-the-ground approach to deal sourcing, will have a competitive edge as the market continues to evolve. With its focus on tighter covenants and a buy-and-hold approach, middle-market lending can also be appealing to investors seeking resilient strategies.
- EM equities: After underperforming developed markets for more than a decade, EMs present a potentially strong entry point for long-term investors. EMs are trading near discounts not seen since the dot-com bubble, providing attractive valuations relative to DMs. In addition, demographic trends should be a tailwind for EM economies, which is forecast to translate into stronger earnings growth going forward. A systematic process for evaluating stocks will help investors manage uncertainty around economic conditions, geopolitics, and global trade flows.
- Macro and policy considerations: Donald Trump’s return to the White House could add new wrinkles to the global macro outlook, presenting implications across asset classes and sectors. It remains to be seen how the Trump administration implements its plans for new tariffs. The impacts on inflation, interest rates, and the dollar will depend on the outcome. Given this uncertainty, equity investors would benefit from focusing on economic fundamentals as well as value, growth, and quality across the spectrum. A higher-for-longer rate environment would suggest that yields remain attractive in fixed income, and focusing on credit quality can help mitigate downside risks. In direct lending, higher rates call for more modest leverage on the balance sheet and a focus on strong underwriting. Regardless of policy shifts, secular changes to the banking system will likely continue, supporting growth in asset-backed finance and securitized markets.
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.
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