Evergreen Investments has been adding new money to single-B rated issues as it looks for some yield in a white-hot junk market. Dick Cryan, portfolio manager at Evergreen, which manages a total of $4.25 billion in high-yield assets, says the dramatic improvement in the credit cycle is a better indicator than the slowly improving economy that high-yield investors should be comfortable in riskier investments. The firm has lately been taking in up to $100-150 million per month in new assets, Cryan says.
Cryan continues to see opportunities in the homebuilding sector, as low mortgage rates drive new home purchases. Names that still carry some yield include WCI Communities. The company's 9.125% notes of '12 (B/Ba3) were trading at 102 last Monday. Cryan notes that the company specializes in the more discretionary second home market, but says its 8.80% yield is very good for its rating.
Another homebuilder he likes is Williams Scotsman. The 9.875% notes of '07 (B/B3) were trading at 95.5 on Monday. Its customers, which include state and municipal governments, tend to be long-term and of good credit-worthiness, he says. The company leases trailers for building expansion and construction projects, which can also be a cheap way to add space in a time of tight budgets, Cryan says.
Given the current paucity of high-yield investments that deserve the name, Evergreen occasionally has to find a short-term place for new assets, Cryan says. One example is the Scotts Care 8.625% notes of '09. That issue was trading at 106.75 last Monday.
Evergreen's $940 million institutional portfolio is overweight the homebuilding, retail, metals and mining and gaming sectors versus its bogey, the Merrill Lynch high-yield master index. It is underweight electric utilities, telecom and energy sectors.
