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| Richard Hodges |
Gartmore Investment Management may buy up to £105 million ($190 million) in European high-yield bonds, doubling the junk bond exposure of its corporate bond portfolio in a bid to take on more yield. Richard Hodges, senior fund manager and head of European fixed income in London, says the move would raise its high-yield allocation to 15% of its £700 million European corporate bond portfolio. Hodges plans to fund the increase to high yield through the sale of investment-grade corporate bonds. He will scale back overweight positions in telecom and industrial names. The firm has been overweight bonds from issuers such as Telecom Italia, France Telecom and Deutsche Telekom for some time. He observes that last year, telecom companies placed an emphasis on balance sheet repair, which benefited bondholders. Going forward, he predicts that emphasis could shift to the benefit of equity holders, which could prevent any further tightening in the companies' outstanding bonds.
Although Hodges declined to say which high-yield names he may add, he says they will be from issuers that are exhibiting strong improvements in their credit metrics. For example, companies that are reducing leverage and disposing assets are particularly attractive.
Gartmore only began investing in high yield four months ago and so far has been concentrating on names such as Alcatel, Xerox Corp, Vivendi Universal and Ericsson, which are all companies that have made improvements to their core businesses, Hodges says. He adds Gartmore has moved down the credit curve to garner greater returns and carry.
Gartmore manages a total of £6.7 billion in fixed-income assets. It uses the Merrill Lynch EMU Corporate Index as the benchmark for its corporate bond portfolio.
