Morley Fund Management in London is looking to add to positions in telecommunications and financials, according to Mark Gull, credit fund manager. He helps run Morley's more than £20 billion ($36 billion) in sterling-denominated, investment-grade corporate bonds. The investments are benchmarked against a wide range of indices determined by Morley's investors.
While sector themes have not been a major driver in the market over the past year, Gull pointed out certain sector overweights do emerge from a bottom-up analysis. The fund manager favors financials because they are heavily regulated by the U.K.'s Financial Services Authority and are prevented from gearing up their balance sheets too heavily. HSBC is a top pick because it has good growth prospects due to a powerful global franchise. "HSBC has good exposure to Asia, as well as the U.S. through its recent acquisition of Household Financial," said Gull.
The telecommunications sector also offers attractive investment opportunities, because companies continue to reduce financial gearing, generate reasonable cashflow, and in addition the wave of upgrades in the sector still has a little way to go, according to Gull. Bonds of France Telecom are among Gull's most favored.
On the flip side, the fund manager is inclined to underweight bonds of consumer companies, because margins on the high street are getting squeezed and the U.K. consumer is stretched as a result of the series of rate rises by the Bank of England.
Gull noted his preference is to invest in triple-B bonds in maturities of 15 years or less and in higher-rated bonds at longer maturities, given the steepening in the credit curve. Overall, Morley stays duration-neutral in its corporate bond funds and instead takes duration bets through its investments in gilts.
