Why We Focus On Credit, How It Leads To Real Growth
- Steadfast Equity
- Jun 13
- 12 min read
Updated: Jun 17
Credit-focused investing combines steady returns with the power to drive economic growth. By funding projects like infrastructure, clean energy, and business expansion, credit investments create jobs, support innovation, and deliver predictable income for investors. Ethical credit strategies align financial goals with social values, channeling capital into impactful areas like green and social bonds.
Key Takeaways:
- Private Credit Growth: Worth $2 trillion by 2023, projected to hit $2.6 trillion by 2029.
- Ethical Investing Impact: Funds critical projects like renewable energy and affordable housing.
- Infrastructure Debt Strength: Recovery rates of 70%, higher than unsecured corporate debt.
- Portfolio Benefits: Diversification, higher yields, and lower volatility compared to equities.
Credit investments aren't just about returns - they're about fostering long-term economic progress while aligning with ethical values.
The Credit Investor's Handbook: Leveraged… by Michael Gatto · Audiobook preview
How Credit Drives Economic Growth
Credit markets play a pivotal role in economic growth by channeling funds into initiatives that create jobs, improve infrastructure, and encourage innovation. When investors purchase bonds or other credit instruments, they provide the financial backing for projects that deliver measurable benefits to communities. This flow of capital supports both infrastructure development and business expansion, as outlined below.
Credit's Role in Infrastructure and Business Development
Infrastructure debt is a key driver of economic progress, offering competitive returns while financing critical long-term projects like renewable energy, transportation networks, digital infrastructure, and water systems. According to Preqin, private infrastructure debt assets under management surpassed $168 billion in 2024, reflecting an impressive annual growth rate of 14.4% since 2015. This type of debt is particularly attractive due to its strong collateral backing and long-term agreements, which ensure stable and predictable cash flows.
Recovery rates for infrastructure debt also outshine other forms of credit. Moody's reports an average recovery rate of 70% for infrastructure debt, compared to just 52% for unsecured corporate debt. Meanwhile, high-yield bonds play a complementary role by funding corporate initiatives such as expanding operations, launching new products, hiring employees, and entering new markets. These activities not only create jobs but also generate tax revenue, further boosting local economies.
Real-World Examples: Credit Investments in Action
The impact of credit investments on economic activity becomes clear through real-world examples. During the COVID-19 pandemic, infrastructure debt demonstrated its resilience. In April 2025, Macquarie Asset Management studied airport financing during the crisis. Lenders worked with borrowers by temporarily waiving interest coverage ratio covenants, while borrowers provided detailed financial updates and accepted higher interest rates during the waiver period. As air traffic recovered, covenants were reinstated without a single missed interest payment.
Another compelling example is Ford Motor Company's recovery journey. After being downgraded to high-yield status in 2005, Ford leveraged the high-yield debt market to fund a strategic restructuring. By 2012, the company had regained its investment-grade rating. This case highlights how credit access enables businesses to rebuild, protect jobs, and stabilize their financial health. These examples also underscore the ethical aspects of credit investing, where flexible financing and strategic decision-making contribute to long-term growth and stability.
Trends and Data Supporting Credit-Driven Growth
Emerging market trends further highlight the strength of credit-driven growth. Long-term shifts such as digitalization, decarbonization, and demographic changes are driving demand for both new project financing and refinancing of existing assets. As traditional banks reduce their involvement in long-term lending, private credit providers are stepping in to bridge the gap, ensuring that viable projects continue to receive funding.
Historical performance data reinforces the potential of credit-focused strategies. For instance, when high-yield bond yields reached 7.7% or higher, the market delivered positive three-year forward annualized total returns 85% of the time, with an average return of 8.0%. These strategies not only generate strong financial returns but also align with principles of ethical investing, supporting both economic advancement and social progress.
Principles of Ethical Fixed-Income Investing
Ethical fixed-income investing weaves environmental, social, and governance (ESG) factors into credit-focused strategies to align investments with societal values and long-term goals, all while managing risk effectively. This approach goes beyond traditional financial metrics, considering how a company's operations, governance, and environmental impact shape both its financial health and its broader influence on stakeholders.
The practice has evolved significantly, shifting from simple exclusionary tactics to active engagement strategies that aim to create tangible change. This evolution reflects the growing acknowledgment that ESG factors are increasingly relevant to financial outcomes. For instance, in January 2023, ESG considerations influenced 28.6% of company profiles, with social factors driving 84% of ratings actions. Below, we’ll explore how ESG principles are embedded into credit market evaluations.
Understanding ESG Integration in Credit Markets
ESG integration involves systematically assessing bonds and issuers against environmental, social, and governance criteria to determine their creditworthiness and stability. Here's how these factors break down:
- Environmental factors: Assess a company’s impact on climate change, resource use, pollution control, and waste management.
- Social considerations: Examine labor practices, community engagement, product safety, and supply chain management.
- Governance aspects: Focus on board composition, executive compensation, shareholder rights, and audit practices.
Rachel Whittaker, Head of SI Research at Robeco, explains the importance of ESG integration:
"We believe in the principle that using financially material ESG information leads to better-informed investment decisions."
The application of ESG criteria varies depending on the type of fixed-income security. Corporate bonds require scrutiny of business practices and governance, while government bonds emphasize policy frameworks and institutional stability. Investment-grade securities often involve lower risk, while high-yield and private instruments present more risk but also greater opportunities for engagement and potential outperformance.
Mitch Reznick, CFA and Co-Head of Credit at Hermes Investment Management, highlights the fiduciary responsibility:
"Although credit risk is the principal driver of both the level of and changes in credit spreads, we know that ESG factors also influence credit spreads. Given that we know this, in order to deliver on our fiduciary duties we are compelled to assess and price ESG risks when making investment decisions."
Since 2020, ESG integration has overtaken negative screening as the leading sustainable investing strategy. This shift underscores how ESG considerations enhance risk assessment and uncover opportunities that traditional analysis might miss. While ESG integration focuses on refining risk evaluation, impact investing takes a step further by actively pursuing measurable social and environmental outcomes.
The Role of Impact Investing in Credit Strategies
Impact investing in fixed-income securities combines competitive returns with measurable contributions to addressing global challenges like climate change, inequality, and infrastructure needs. Unlike ESG integration, which focuses on risk, impact investing prioritizes creating positive change.
Ihor Okhrimenko, Credit Analyst at Robeco, explains the distinction:
"ESG integration is important, but I view it as being the very first – and basic – element of a sustainability toolkit. It considers only the financial risk faced by the bond issuer, and is not necessarily about making the world a better place. The critical aspect in our move towards a more sustainable future is to have a focus towards impact."
Impact investing often involves green bonds, social bonds, and sustainability-linked bonds, which collectively funded over $3.5 trillion in projects by 2023. Here’s how these bonds work:
- Green bonds: Support renewable energy, energy efficiency, and sustainable transport projects.
- Social bonds: Fund initiatives like affordable housing, healthcare access, and education programs.
- Sustainability-linked bonds: Tie interest rates to the issuer’s achievement of specific sustainability goals.
For example, Ardagh Metal Packaging’s recycling efforts avoided an estimated 3.7 million metric tons of CO2 equivalent emissions in 2022 compared to using virgin materials. This showcases how impact investing delivers measurable environmental benefits while supporting business operations.
The rise of impact investing reflects a growing market belief that tackling societal challenges can uncover new investment opportunities. ESG-focused funds have reached $2.7 trillion globally, with studies indicating that companies with strong ESG performance often experience better financial results and lower risks.
To succeed, impact investing demands clear measurement frameworks, transparent reporting, and continuous monitoring of both financial returns and social outcomes. Balancing the dual objectives of returns and positive change is key, ensuring that neither goal is sacrificed for the other.
Strategies for Building a Credit-Focused Portfolio
Crafting a credit-focused portfolio calls for a thoughtful approach that combines risk management, return optimization, and ethical considerations. Success hinges on understanding how various credit instruments interact and implementing processes that adapt to shifting market conditions.
Diversification and Sector Selection
Diversification is the cornerstone of a resilient credit portfolio, helping to reduce risks tied to market volatility and over-concentration. It’s a method that supports long-term growth by spreading investments across different categories.
- Geographic diversification: By investing across multiple regions, you can reduce exposure to localized risks like economic downturns, regulatory shifts, or currency fluctuations. For instance, U.S. corporate bonds might face challenges during domestic uncertainty, but credits from other regions could provide stability.
- Industry diversification: Different sectors react uniquely to economic cycles. A balanced portfolio might include sectors such as healthcare, utilities, consumer staples, and industrials to cushion against sector-specific challenges.
- Issuer size diversification: Balancing investments between large, stable corporations and smaller, higher-risk companies can enhance the risk-return profile. Large issuers tend to offer stability with lower yields, while smaller ones present opportunities for higher returns at greater risk.
Research highlights that reducing concentration risk can lead to a 21% capital relief, significantly improving the portfolio’s risk-return balance. Once diversification is in place, understanding the nuances of high-yield and investment-grade bonds becomes essential.
Comparing High-Yield vs. Standard Bonds
High-yield and investment-grade bonds each bring distinct characteristics to a portfolio. Here's how they compare:
Feature | High-Yield Bonds | Standard Bonds (Investment Grade) |
Risk | Higher | Lower |
Return | Higher | Lower |
Credit Rating | Below BBB- (S&P) or Baa3 (Moody's) | BBB- or higher (S&P) or Baa3 or higher (Moody's) |
Issuer | Companies with higher default risk | Financially stable entities |
Economic Sensitivity | More sensitive to economic changes | Less sensitive to economic changes |
High-yield bonds often deliver returns comparable to equities but with reduced volatility. Their income component contributes to this stability, and their low correlation with investment-grade bonds makes them valuable for diversification. However, they come with risks. For example, during the 2009 recession, U.S. high-yield bond default rates exceeded 14%.
On the other hand, investment-grade bonds offer lower risk and steady returns, making them a reliable choice during economic uncertainty. While high-yield bonds and equities often react similarly to market conditions, the consistent income from high-yield bonds can provide an edge in stability compared to pure equity investments.
Regular Portfolio Review and Rebalancing
To keep a credit-focused portfolio aligned with market changes and ethical goals, regular reviews and rebalancing are crucial. As Roger Young, CFP® and Thought Leadership Director at T. Rowe Price, explains:
"Rebalancing is an important way to help minimize volatility in a portfolio and may improve long-term returns".
Annual reviews, as recommended by Vanguard, help manage volatility and maintain target allocations without incurring excessive trading costs. Research suggests that monitoring allocations frequently while rebalancing only when deviations occur can be beneficial.
Key steps in rebalancing include:
- Reviewing current allocations
- Identifying deviations from target levels
- Adjusting by selling over-weighted positions and buying under-weighted ones
- Allocating new funds as necessary
Tax implications are a critical factor in taxable accounts. Using dividends and interest for rebalancing can help minimize taxable events. The primary goal of rebalancing is managing risk, not maximizing returns.
Creating a personal investment policy statement, which outlines your asset allocation targets and rebalancing rules, can maintain discipline during market shifts. For those who find manual rebalancing overwhelming, robo-advisors offer automated solutions. However, it’s essential to understand the principles behind rebalancing to ensure that automated strategies align with your ethical and long-term investment goals.
Steadfast Equity's Approach to Credit-Focused Growth
Steadfast Equity takes a thoughtful approach to credit investing, emphasizing ethical principles to promote sustainable growth. The firm believes that building lasting wealth requires a combination of patience, strong ethics, and strategic decision-making. As they put it:
"true wealth is built over time, through careful, deliberate decisions that prioritize stability, ethics, and real value"
This philosophy guides not only their credit-focused investment products but also the way they choose investor partnerships. It’s a mindset reflected in their diverse bond plans, carefully designed to meet a range of investor goals.
Overview of Steadfast Equity's Bond Plans
Steadfast Equity offers a variety of bond investment options tailored to different time horizons and income preferences. These plans range from 1-year to 12-year terms, with returns between 10.0% and 18.5% APY. Their portfolio includes two primary categories:
- Standard Bond Series: These plans provide terms from 1 to 12 years, offering either monthly payouts or compounded returns. For example, a 5-Year monthly plan offers a 12.0% APY, while a 5-Year compounded plan delivers a 14.5% APY.
- High-Yield Bond Options: Focused on sectors like technology, artificial intelligence, biotechnology, and real estate, these options include a 3-Year Compounded plan at 15.0% APY and a 5-Year Compounded plan at 18.5% APY.
The firm's emphasis on artificial intelligence (AI) is strategic, considering the sector's projected growth at a compound annual growth rate (CAGR) of 35.9% from 2025 to 2030. Steadfast Equity highlights this focus with the statement:
"We invest in AI not to replace people - but to augment productivity, drive economic growth, and future-proof our portfolio against structural shifts already underway"
Each bond plan offers fixed returns, ensuring predictable income while reinforcing a foundation of long-term stability.
How Steadfast Equity Supports Long-Term Stability
Steadfast Equity’s commitment to stability goes beyond their tailored bond plans. Their approach to ethical credit investing is reflected in a rigorous investor screening process that prioritizes sustainable, long-term growth over short-term profits. This process includes thorough character evaluations and the discretion to decline partnerships with investors who don’t align with their values of mutual respect, lawful behavior, and ethical use of funds.
Additionally, Steadfast Equity avoids deploying capital in ways that could contribute to harmful practices. They maintain full transparency and adhere to strict legal standards, ensuring that their investments align with their principles and the broader goal of ethical wealth creation.
Conclusion: Credit as a Path to Growth
Investing with a focus on credit plays a vital role in driving economic progress while delivering steady returns for investors. Ethical credit investments create a ripple effect: they fund infrastructure projects, fuel business growth, and establish income streams that benefit both investors and the broader economy.
The numbers back this up. Research indicates that sustainable portfolios carry notably lower credit risk compared to their non-sustainable counterparts. In fact, in 2019, Moody's noted that environmental, social, and governance (ESG) risks influenced one-third of its credit rating decisions for private sector issuers, underlining how ESG considerations have become central to credit analysis. Credit, therefore, serves as a cornerstone for understanding its broader influence on economic development.
The momentum behind ethical credit investing is undeniable. With global ESG assets projected to surpass $53 trillion by 2025 and the sustainable finance market anticipated to exceed $20 trillion by 2032, investors prioritizing credit are positioning themselves at the forefront of a transformative shift in capital allocation.
Steadfast Equity exemplifies this shift through its disciplined approach to credit investing. The firm's history of consistent performance highlights the potential of well-executed credit strategies, with annual yields ranging from 9.0% to 18.5%. By targeting high-yield, short-duration private credit opportunities, Steadfast Equity navigates markets that traditional institutions often overlook due to regulatory limitations.
"At Steadfast Equity, our firm commitment to long-term value creation is the cornerstone of everything we do. While others may chase fleeting trends, we remain focused on investments that endure".
This philosophy underscores the idea that real wealth creation through credit demands patience, strategic insight, and ethical choices. Whether it's green bonds funding renewable energy, social bonds supporting community projects, or corporate credit enabling business expansion, credit investments deliver measurable economic benefits while generating returns.
For investors aiming to align their portfolios with both financial objectives and ethical values, credit-focused strategies provide a clear and effective path. Credit offers predictable income, diversification for risk management, and a positive economic impact, making it a key element of any growth-driven investment plan. As sustainable finance continues to expand rapidly, those embracing credit's role in economic growth stand to gain from this evolving investment landscape.
FAQs
How does ethical credit investing drive financial growth and social impact?
Ethical credit investing offers a way to pursue financial growth while making a positive impact on society. By channeling funds into credit instruments like high-yield bonds and socially responsible fixed-income options, this strategy aligns investments with values such as sustainability and social responsibility. The result? Investors can aim for strong returns while supporting initiatives that uplift communities and promote environmental well-being.
Interestingly, studies indicate that ethical investment strategies often outperform traditional ones over time. This shows that responsible investing doesn’t have to come at the expense of financial success. In fact, it can help manage risks more effectively while contributing to economic development and meaningful social progress. It’s a clear example of how financial goals and doing good can work together seamlessly.
What are the advantages of adding infrastructure debt to a credit-focused investment portfolio?
Infrastructure debt offers a mix of stability, predictability, and diversification, making it an appealing option for credit-focused portfolios. One of its standout features is its relatively low default rate - about 1.2% - especially when compared to non-financial corporate debt, which has a significantly higher rate of around 14.1%. On top of that, infrastructure debt tends to have better recovery rates, helping investors manage risk more effectively.
This type of debt is often tied to infrastructure projects like transportation, energy, and utilities. These projects provide crucial services and typically generate steady cash flows, making them less vulnerable to economic ups and downs. These qualities not only strengthen portfolio resilience but also offer long-term value for investors aiming for dependable returns.
How do ESG factors shape credit evaluations and investment strategies?
The Role of ESG in Credit Evaluations and Investment Strategies
ESG factors - - are becoming essential in shaping how creditworthiness is assessed and investment strategies are developed. Credit rating agencies now consider these elements in their evaluations because they can directly impact a company’s financial stability and long-term risk outlook. For example, companies with strong environmental initiatives or effective governance frameworks often earn higher credit ratings.
Incorporating ESG insights enables investors to make decisions that align with both their financial goals and broader societal or environmental values. This dual focus helps uncover sustainable investment opportunities while managing potential risks, promoting responsible growth across portfolios and the wider economy.
