Where Goldman sees the best opportunities for income in the second half of the year

Goldman Sachs Asset Management suggests focusing on income-generating opportunities amid tariff and Fed policy uncertainty, highlighting that while credit spreads are tight, corporate fundamentals remain strong. They favor securitized products, particularly AAA-rated CLOs, citing attractive yields and strong demand coupled with limited supply of underlying bank loans; the Janus Henderson AAA CLO ETF (JAAA) currently yields 5.35%. Select opportunities also exist in commercial mortgage-backed securities, specifically single-asset, single-borrower CMBS with high-quality office collateral.

Analysis

Amid significant uncertainty surrounding U.S. tariff policy and the Federal Reserve's monetary path, Goldman Sachs Asset Management identifies a strategic focus on income generation. While the Fed is currently on hold, it anticipates two rate cuts this year, contingent on future economic data, particularly from the labor market. This cautious macro outlook is juxtaposed with an environment of tight credit spreads, which Goldman's analysis suggests are justified by strong corporate fundamentals and disciplined behavior. Consequently, their strategy is to build portfolios for carry rather than capital appreciation. The firm specifically highlights securitized products for their attractive income-to-risk profile. Within this space, AAA-rated Collateralized Loan Obligations (CLOs) are favored due to a compelling supply-demand dynamic, where strong investor demand meets relatively soft issuance of underlying bank loans; the Janus Henderson AAA CLO ETF (JAAA) is cited as an example, with a 30-day SEC yield of 5.35%. Additionally, select opportunities are identified in Commercial Mortgage-Backed Securities (CMBS), particularly in single-asset, single-borrower deals backed by high-quality office collateral that have been refinanced to the current interest-rate environment, offering robust structures for investors prepared to conduct thorough underwriting.

Key Decisions for Investors

• Given the combination of policy uncertainty and tight credit spreads, investors should consider prioritizing income-generating strategies that are supported by strong underlying corporate fundamentals.
• Evaluate allocations to high-quality securitized products, specifically AAA-rated Collateralized Loan Obligations, which currently offer attractive yields due to favorable supply-demand dynamics.
• For portfolios with the capacity for deep credit analysis, selectively investigate single-asset, single-borrower CMBS, as these can offer robust value, but require thorough underwriting to confirm recovery potential.
• Closely monitor incoming labor market and inflation data, as these will be the primary drivers for the Federal Reserve's decision on rate cuts, which would significantly impact fixed income valuations.