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| Craig Abouchar |
London-based Insight Investment is focusing on double-B rated bonds and is also willing to take risk in double-B-like investments due to the scarcity of new issues in the rating class in Europe. Craig Abouchar, senior portfolio manager for the firm's £225 million in high yield, said he is adopting a defensive stance targeting capital preservation, rather than trying to hit a home run by chasing yield further down the credit curve. Insight does not have a dedicated high-yield portfolio but includes junk bonds in a range of investment-grade portfolios which are benchmarked against a variety of indices. Abouchar said there are no plans to alter the high-yield versus high-grade split in any of the portfolios; he declined to put a figure on how much he will trade into higher-rated names.
High-yield names Abouchar favors include U.K. food group RHM and German engineering firm PERI, because of the lack of volatility rather than because they're cheap. "Both RHM and Peri have been very stable. Peri is trading around the 104 level and while the deal didn't come with a lot of yield in the first place, it hasn't traded down either," he noted.
Meanwhile, names that were trading cheap at the beginning of the year haven't necessarily performed well. "A lot of them got hit hard in the recent volatility," noted Abouchar. German sanitary fittings company Grohe and German do-it-yourself company Hornbach-Baumarkt both came out with disappointing earnings and traded down a couple points as a result. "At a time when we're neutral on credit it's especially important not to let one name kill performance--so it's best to steer entirely clear of shaky names and consequent losses," commented Abouchar.
As to new issues, the fund manager is positive on the two recent deals which galvanized the high-yield market after a six week lull. "It's not that the new issue market was closed from May on; it's just that investors were looking for better pricing and both Codere Finance and Foodcorp came at more attractive levels," said Abouchar. He was referring to the €335 million deal for the B2/B rated Spanish gaming company (Codere), which came with an 8.25% coupon, and the first ever South African deal to come in euros, the €175 million deal for a B2/B+ rated food producer yielding 8.875%.
