Investec Asset Management, which manages $600 million in spread product from its London office, has been adding to downtrodden chemical, consumer cyclical and insurance names as well as new high-yield issuance. Michael Markham, head of credit, says chemical and consumer cyclical names have been ignored by the market, but have been performing well. He says Goodyear Tire & Rubber and Huntsman International, a chemical company, are examples of names to which he has been adding. He declined to name specific issues he has purchased.
In addition, during the last major drop in the equity markets life insurance spreads blew out, but Markham notes there has been significant rebound. He bought investment-grade names Prudential and Standard Life. He also bought Royal & Sun Alliance, which has done well after spreads widened when investors were concerned the firm was going under.
Since October of last year, the European market has seen a rally in high yield. Markham believes the high-yield rally will continue in the present low interest rate environment coupled with investor demand for higher-yielding paper. Whilst economic growth isn't particularly great, companies are looking to fix up their balance sheets and are using earnings to pay down debt, which should benefit bondholders, notes Markham. European high-yield bonds are also coming to market with improved covenants and better deal security, he adds.
Recently, Markham has bought deals from NycoMed, a pharmaceutical company and media company, Vivendi Universal. New issues in the pipeline are deals from Focus Wickes--a U.K. home store and Remy Cointreau--a cognac and champagne company.
