M&G Investments, one of the U.K.'s largest money managers, will add tier-one U.K. banks to its £1.2 billion corporate credit portfolio. Anna Lees-Jones, London-based portfolio manager, says she will pick up paper in both the primary and secondary markets. "U.K. banks have better fundamentals than [European Union] banks, because they haven't taken on as many non-performing loans and their business risk is less," she says. Lees-Jones declined to name the banks she is considering.
Lees-Jones is also expecting to see some tightening in the high-yield telecom sector. She says she will take profits on her high-yield telecom positions--which she declined to name--once they tighten by another 20 basis points. British Telecommunications' (Baa1/A-) sterling 712% of '16 and WorldCom (A3/BBB+) sterling 714% of '08, both are in the portfolio, but Lees-Jones plans to hold onto those for the time being.
In general, Lees-Jones is bullish on the European bond market and expects credit spreads to tighten versus gilts. "We'll continue to see bad news from corporates, but you should look at what their expectations are instead of what happened," she says. Lees-Jones also points to U.K. pension funds' increased involvement in the credit market as an impetus for spread tightening. "Based on anecdotal evidence, there has been a lot more demand than supply," which should give the market technical support, she says.