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| Dick Cryan |
Evergreen Investments wants to pick up single names trading at a discount in a high-yield market where many names are trading at a premium, said Dick Cryan, lead manager of the $500 million Evergreen Select High-Yield Bond Fund in Boston. "We're looking to make trades where we can reduce our dollar price, pick up yield, increase issuer size and maintain or increase our credit quality," he stated, explaining his ideal trade. Although many names are trading at a premium, Cryan insists his strategy is feasible. For example, he recently sold middle market MTR Gaming paper above par and bought MGM Mirage paper at a discount, increasing his liquidity as MGM is a larger junk issuer. "High yield is an unattractive investment to the extent you are holding a portfolio trading at a premium if a bond matures at par," he added. Cryan is not currently engineering any changes to his industry weightings but said he is willing to do bond-to-bond comparisons across sectors. "We've been focusing on bottom-up relative value security selection and our industry weightings are a result of holdings in names," he stated, adding "we think this is a market of blocking and tackling."
Evergreen uses the Merrill Lynch High-Yield Master Index. The fund has been overweight commodity chemicals for the past two years but has started to take profits in the sector and its weighting currently sits at 5% versus the index's 4%. Unless there is new issuance in the sector, which Cryan doubts will happen as companies are generating free cash flow, he anticipates his allocation will continue to decline. Evergreen is underweight telecom with a 4% allocation versus its benchmark's 12.3% weighting, because the sector is too low-quality for the manager. "We own everything we can, but it's a triple-C sector," he explained, noting he looks for mid-sized single-B names. Cryan buys mostly in the secondary market and his duration is currently around 4.5 years.
