Old Mutual Asset Managers, which manages about £350 million in corporate credits from its London office, is searching for new issues from new names. Richard Woolnough, fund manager, says any new issues are heavily oversubscribed as investors with cash to put to work hunt for diversity. He cited the recent deals from Citigroup and New Zealand Telecom as examples. Woolnough bought both deals. He is looking for double- and single-A rated bonds.
Woolnough expects to see some issuance from U.K. chocolate-maker Cadburys and Kingfisher, which owns a chain of Do-It-Yourself stores. He believes the two companies will issue debt to fund recent acquisitions.
Recently, Woolnough reduced allocation to triple-A names by 20% and completely sold off gilts, which had been 19% of the portfolio. Old Mutual has reinvested in single-A and double-A names such as Gus PLC, which owns U.K. retailers Argos and Burberrys. The firm has also increased exposure to BG Energy--the oil exploration unit of British Gas and to Bradford & Bingley, a U.K. retail bank.
"Basically, it is our view is that in the long-term corporates will outperform gilts, especially because there is such large supply of gilts," says Woolnough. He is buying longer-dated corporate paper because that is where the pension funds have been deploying large amounts of cash, helping spreads to tighten.
Woolnough is keeping his portfolio long on duration, because he believes The Bank of England will keep rates lower for longer. Currently, the fund is 15% longer than its benchmark, the FT Actuaries all gilt index.
