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CONTRIBUTORS

Ashley Allen

Research Analyst,
Franklin Templeton Fixed Income

Bryant Dieffenbacher

Portfolio Manager/Research Analyst, Franklin Templeton Fixed Income

We are pleased to present the next iteration of the Franklin Templeton Fixed Income (FTFI) Fifteen, a video series designed to cover relevant market topics in approximately 15 minutes. In this segment, join FTFI’s Research Analysts Ashley Allen and Bryant Dieffenbacher as they discuss the food, water and energy sectors and what their convergence means for investors.

A few of the topics covered include:

  1. We are seeing some stability return to the oil and gas sector after the volatility witnessed during the COVID-19 pandemic and following Russia’s invasion of Ukraine. Over the medium term, we expect energy prices to be more rangebound, though we must warn investors not to become complacent.
  2. Sales in the retail sector have been slowing over recent months, while margins have declined as it has become harder for companies to pass along price increases to consumers in the current interest rate environment. The restaurant sector has also seen some weakness, with consumers increasingly prioritizing “needs” over “wants” as their savings dwindle.
  3. Some of the key macroeconomic headwinds facing the energy sector are slowing global growth, as demand is weighed down by tighter financing conditions and a sluggish recovery in China. In terms of secular demand, a longer-term challenge is certainly the electrification of the transportation sector. We do believe that demand should continue to increase for the next few years, but always take care to take on risk only when it appears to be attractive from a risk/reward perspective.
  4. The food, water and energy sectors are converging, a result of their interconnectedness (or “nexus”) and particularly because of their importance to sustainability. For investors in the food and water sectors, sustainability considerations are crucial and can help create a more stable and secure supply chain over the longer term. Meanwhile, the energy sector is going through a trend of consolidation, which can result in stronger credit profiles and offer some attractive opportunities for fixed income investors. We encourage you to delve deeper into the food-water-energy nexus by reading our team’s chapters in the series of papers from Franklin Templeton Institute. Our piece in Water disruption: Investment risk from multiple angles, focus on impacts of water shortages on the municipal bond sector. Our views on the impacts of extreme weather on food prices are featured in Food innovation: Investing to feed our future. Finally, the newest piece looking at high yield’s role in energy transition can be found in Energy transition: Accelerating investment opportunities.

For more insight, watch the next installment of the Franklin Templeton Fixed Income Fifteen.

WHAT ARE THE RISKS?

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

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