Investec Asset Management is ramping up its allocation to European high-yield bonds. "With a reasonably sanguine outlook for economic growth, there is significant space for high-yield to perform," says Michael Markham, London-based head of credit, who manages $600 million in spread product. The firm has been actively buying, in an effort to buy names set to benefit from an economic recovery, except telcos. It recently bought Sanitec's new issue on the view the company, which manufactures bathroom fixtures, will benefit from a pick-up in general house building. Investec is also considering Kronos, which makes titantium oxide--the essential ingredient in white paint, and Herbalife, a vitamins and healthcare products company.
"Our biggest bet has been to be underweight telcos," says Markham. Although Investec does have a few telco positions, such as British Telecommunications and TeleDenmark, which are higher-rated but lower-levered names and still have attractive spreads for level of risks. "The recovery in Europe and in the U.K. is on a reasonably comfortable footing, so we will be looking to pick up some of the cyclical names in the consumer, basic industries and chemical sectors. The firm has a small position in ABB's 5 3/8% of '05s as well as some of the new coupon-protected 10% of '09s. The firm has also bought EMI's 8.25% of '08. "We think the new management has gotten to grips with sorting out the cost side and we're adequately compensated for risk for paper that should perform reasonably well," says Markham of EMI. He adds the firm possibly will continue to add to cyclical names if valuations continue to look attractive.
