Avoiding financial leverage in the current market

Following on from her recent article on where fund managers would invest $10,000,  Lucy Dean from The Australian Financial Review asked managers including Talaria’s Co-CIO Chad Padowitz what they are selling and why.

Chad’s answer was to reframe the question to what Talaria is avoiding and why.

“Amid a weakening economy and high interest rates, Talaria is deliberately avoiding leverage in its investment strategy, Chad says.

“Leverage, which entails using borrowed funds to invest or operate a business, can amplify potential returns in both positive and negative directions. However, the substantially increased cost of leverage, coupled with the deteriorating economic conditions has made it less appealing.

“Specifically, companies that acquired debt during a period of low interest rates may find themselves obligated to refinance at significantly higher rates.

“Even in the absence of changes in operating profitability, this can have a substantial impact on net income.” Chad says.

Read the full article here