Energy bonds demise ‘exaggerated’

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Phil Milburn, co-manager of the Kames High Yield Bond and High Yield Global Bond funds, has said that there are significant opportunities for fixed income investors in the energy sector following the sharp fall in the price of oil.

Contrary to warnings about the effects on bonds, Milburn said that many higher rated companies have seen sold off too much; just a tenth of the energy bonds in the Barclays Global High Yield Index are rated CCC and below, and there are many rated B that look attractive on a long term view, he added.

“The lowest-rated independent producers and the oil services companies are the most vulnerable, but rumours of the sector’s complete demise are greatly exaggerated.”

Oil below $60 for an extended period would result in defaults, but these would be “more than manageable”, and losses even in the worst case scenario are unlikely to be more than $100bn, Milburn estimates.

“While one should not get over-exuberant about the potential for mid to high single digit returns, I am pleased that there has been more dispersion in high yield bond returns since September, as it offers active managers like us the chance to add some alpha.”


Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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