Five quick questions for Allianz Global Investors’ Doug Forsyth
San Diego-based Doug Forsyth is managing director and the lead portfolio manager for the Income and Growth Strategies at Allianz Global Investors. Investment Europe asked him five quick questions.
1. Doug, your strategies invest in convertible bonds, high yield and US equities. Over the past three years, what percentage of total returns have come from each complex, and do you see this remaining the case, or changing, over the coming year?
Over the past three years each sleeve rose approximately 12% annualized.
Capital structure arbitrage is a key focus of the fund as it seeks to invest in the most attractive total return opportunity within the capital structure after an issuer has been identified as a viable investment candidate.
The goal of the fund is alpha generation supported by convertible and high yield bond coupons, equity dividends, capital appreciation opportunity from all of the three asset classes as well as premiums collected from option writing.
Going forward, nearly all strategists agree that the outlook for credit is constructive, with minimal defaults projected for both 2012 and 2013.
The combination of healthy balance sheets, low defaults, accommodative monetary policy and the pure lack of other yield options for investors has driven the market higher.
On a year-to-date basis, high-yield bonds’ low-double-digit return has met many strategists’ full-year return targets. If rates and the environment remain in their current condition, a coupon-like return should be anticipated over the next twelve months.
While credit-spread volatility will continue to impact convertible performance, equity market volatility will also be a driver of future convertible returns.
Companies are expected to use both the high cash levels on their balance sheets and future free cash flow to boost shareholder value. Share buybacks, increased dividends and merger and acquisition activity are possible uses of excess cash. These factors should benefit equities and convertibles.