M&G Investments has been adding single-A and triple-B corporate credits to its £1.3 billion corporate credit portfolio, because triple-As have become too expensive. Anna Lees-Jones, London-based portfolio manager, says the firm reduced its exposure to triple-As to 3% of the portfolio over the past six months and has been devoting new cash to names further down the credit curve. The firm has been buying new corporate issuance as well as secondary paper.
One of the new issues Lees-Jones is considering is the £1 billion deal from Metronet--the securitization of the London Underground. She says she has not yet decided whether to buy the deal because it is very complicated and features a monoline wrap. Lees-Jones says she needs to determine whether she can take on any more exposure to monolines before buying the deal. In addition, she expects a lot more paper from the U.K. transport sector.
Lees-Jones has been establishing a lot of small positions in U.K. corporates, on the view that even with intensive credit research, surprises cannot be avoided completely. She recently boughtAllied Domecq's 6 5/8% of '11 on the back of recent spread widening. Lees-Jones has also bought Bank of Ireland's 6.25% perpetual upper tier two paper at 192 over gilts, which has since tightened to 175 over gilts. She says she added Bank of Ireland because it offered good value and diversification.
The fund allocates 10% to gilts, 33% to triple-Bs, 30% to single-As and 3% to triple-As. The fund is benchmarked against its peer group of U.K. corporate bond funds.
