Edinburgh Fund Managers, which manages £330 million in fixed-income assets, will consider buying triple-B rated corporate bonds once the FTSE reaches 4000. Michael Turner, head of fixed interest, says he is risk averse at the moment--sticking with triple- and single-A credits--because he expects the FSTE to stay in the 3200 range for at least the next two to three months. Once the FTSE achieves 4000, he believes it could lead to better performance from triple-B credits. Currently, Turner characterizes triple-Bs as vulnerable to external shocks and spreads from issuer to issuer to be widely disparate.
In addition, Turner would consider adding life insurance names if there is a rebound in the equity market. For the time being, with equities being near market lows, he is avoiding life names, which are dependent on stock market performance. Turner is also considering adding some water company names, because the sector has been performing reasonably well.
On the gilt side of the portfolio, Edinburgh has a duration of 6.5-years, half a year short the gilt market, which has a duration of 7.1-years at the moment. The firm has been modestly adding duration by going out of two-year gilts into five-years. Short yields have come down since there has been more issuance at the long-end of the yield curve and Turner says two-year gilts are now fully priced, hence the switch into five-years.
