In Henderson's strategic high-yield bond fund, for example, which also includes investment-grade, convertibles and governments, Pattullo in the last month increased the high-yield allocation to 80% and upped sovereigns to 15%, with the remainder in convertible bonds. The fund manager intends to maintain this allocation through year-end. The £56 million fund is benchmarked against the Standard & Poor's U.K. Other Bond index.
"With default rates at their lowest in two decades, reasonable valuations and good technicals in high-yield, we are focusing on single-B credits with credible management teams and not too much leverage." The 10%, 2011 bonds of Focus Wickes, the U.K. do-it-yourself company, constitute one of Pattullo's largest holdings.
The asset manager expects this fall's high-yield issuance to be dominated by high-quality yet highly levered names, with German sanitary fittings company Grohe's recent offering a case in point (BW, 9/13). "This won't be a vintage year for high-yield new issues, so it's especially important to be selective about what you invest in," Pattullo observed. Henderson is neutral on the cable sector and recently lightened up on bonds in Germany's Kabel Deutschland in anticipation of more issuance in the sector.
The duration of the portfolio is seven years, up from four years just one month ago, and Pattullo plans to keep it at this level at least until Christmas. "We believe future interest-rate hikes are already fully discounted by the market and there is a risk bond yields will peak at lower levels than expected," said Pattullo. Consequently, the asset manager has increased holdings in U.K. Treasury 6% '28s to close to 4% of the fund.