The bonds to see investors through the eurozone turmoil

Investors can find some attractive opportunities in bond markets amid the turmoil, according to SWIP’s Steven Logan, co-manager of the group’s £1.3bn High Yield Bond fund.

Logan said as bonds and stocks fall across Europe, investors can find a number of opportunities to snap up attractive securities, with new issues priced more competitively.

“Period corrections in the market are healthy, it reduces complacency and means new bond issuance is priced more attractively,” he said.

Logan favours some high yield stocks in troubled countries, such as the Italian mobile network provider Wind, and is keeping an eye on large investment grade companies in troubled regions, such as Spanish and Greek telecoms companies, which potentially offer interesting opportunities.

Logan has also bought into some retailers, despite their weak business models and like-for-like declines: “Some will be cash generative and will be around for a long time. These offer equity like returns with yields of 10% to 15%,” he said.

Logan has positioned the High Yield fund to benefit from stable to rallying markets in the expectation conditions will return to normal.

However, he warned it would be “naive” to take a high risk approach to running high yield in the current environment.

“The tail-risks out there are massive. It would be naive to have too much risk in a portfolio in an asset class that can be highly illiquid.”

Logan added the eurozone crisis still remains the major risk for high yield investors, but is expecting short-term corrections rather than a dramatic game changing event such as countries exiting the euro.

“Potentially the euro melts down and certain countries leave the currency, which means every asset will be repriced dramatically. This is a low probability event, but will have a high impact if it does happen.

“Or we will see a muddling through with eventual sovereign defaults resulting in periods of volatility that will cause short-term corrections. We are positioned for this second outcome,” said Logan.

Logan will be running a European High Yield Bond fund for SWIP, set to be launched in the fourth quarter of this year.

According to the manager, it will combine European high yield stocks with the US fixed income team’s best stock ideas.

“European high yield is about 20% of the market but it is growing exponentially versus the US.”


This article first appeared in our sister publication Investment Week

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