Edinburgh-based Scottish Widows Investment Partnership is selectively taking money off the table in triple-Cs to lock in some of the price appreciation the lower part of the credit ladder experienced last year and in 2003. Colin Burt, portfolio manager heading up SWIP's €250 million in-house high-yield investments, noted he is, however, holding on to triple-C rated Safilo. At 525 basis points over swaps, he believes the bond is trading wide to its peers and the triple-C index.
Elsewhere, SWIP is focusing on 15 core holdings that constitute 45% of its portfolio, according to Burt. The fund is benchmarked against the Merrill Lynch Original Issue High-Yield Index and Burt declined to name the top 15 credits.
Overall, Burt is pursuing a name-specific strategy since he does not believe any part of the credit spectrum, or any particular sector, will offer superior returns. "The name of the game this year is to defend the spectacular returns we've had and to avoid stepping on any landmines," said Burt. He is concerned 2005 will not deliver the impressive returns of the past two years and may in fact see the first blow-ups in the sector.
On the new issue front, Burt is steering clear of pay-in-kind deals and questioned how much commitment a financial sponsor can have to a deal where it has extracted most of its capital.
Two deals SWIP did participate in recently were for German packaging companies Gerresheimer Glas and Mauser International Packaging. "Packaging is a GDP plus 1-2% growth business, with stable and predictable cash flows, making it an attractive area to invest in," said Burt, noting price guidance on Gerresheimer was initially 8 1/2% but tightened to 7 7/8% when it was priced.
