“While investment grade yields have risen, so too have central bank rates as well as inflation and so for many investors there remains a desire to target higher long-term returns than can be achieved via investment grade credit,” he told WealthBriefing.

“Real returns (after inflation) are important as this is what dictates ultimate purchasing power,” he added.

Reid highlighted how MAC offerings come in different forms, from ‘narrow’ strategies focused primarily on high yield and loans, to ‘go anywhere’ approaches which include most credit asset classes and may even include illiquid credit.

“One common feature of MAC strategies is active asset allocation, the ability to alter the allocations to the various underlying asset classes in response to changing market conditions,” he said.

“The flexibility of MAC portfolios can be useful in times of economic uncertainty,” he continued. Whilst he expects that over 2023 inflation will become less of a feature, the war in Russia/Ukraine may come to an end and Covid will have less of an impact on economies, Reid is not certain of any of these things.

Reid also emphasised the importance of being able to hedge against investment risks, which is part of the flexibility of MAC portfolios. For example, a manager can partially or fully hedge a portfolio from rising interest rates. Or, if a manager believes in the short term that the high yield market might fall, but doesn’t want to incur the transaction costs of selling bonds, it can purchase a derivative to partially protect against falls in high yield markets.

“From our perspective, a successful hedging strategy generates positive returns over time and doesn’t represent a long-term cost to the portfolio,” Reid said.

MAC has the ability to avoid more troubled parts of the credit markets, which has an advantage over static allocations to credit asset classes, he continued.

There are also attractive yields relative to equities, he said. “The underlying yields available in credit markets are higher than in recent years: for US high yield the index yield was 9.0 per cent as we entered 2023, and 10.8 per cent in bank loans and 8.6 per cent in emerging market sovereign bonds,” Reid concluded.