Royal London Asset Management is going to reduce its exposure to triple-B rated corporate names and plans on adding to its holdings in bonds wrapped by monoline insurers. Jonathan Platt, head of fixed interest, says triple-B names have tightened significantly as there has been less risk aversion in the marketplace and investors are looking for yield. Accordingly, the firm is looking at reducing its positions in Rolls Royce, the engineering company GKN and Pearson, the media company. He did not indicate at what levels he would sell these names.
Royal London has been increasing its exposure to monoline-wrapped structured deals. Recently, the firm has bought the BBC sale and leaseback deal and Craegmoor, a nursing home deal. The appeal of the wrapped deal is that even though it's triple-A rated paper, these bonds trade considerably wider than their ratings would suggest. "It is triple-A risk at 50-60 basis points over LIBOR, versus lower-rated industrials that are trading just a bit lower than 100 over," says Platt. Royal London's exposure to monolines has been quite low: "There has been some indigestion in the market over too much monoline paper recently, but we didn't have much exposure and have been taking advantage of attractive spreads," he says.
Platt says that generally most of the firm's recent buying has concentrated on new issuance, and has taken the form of opportunistic issuance from banks such as HSBC and Citigroup. They have also been partaking in euro-denominated issuance in high-yield space like Eircom's recent deal. The firm launched a high-yield fund back in March and is looking at opportunities to increase the sub-investment grade debt in that portfolio. Platt says the firm has been using cash or selling government bonds to fund new purchases.
Royal London manages a total of £10 billion in fixed-interest assets and about £4 billion devoted to corporate bonds. The firm uses a variety of benchmarks.
