Old Mutual Asset Management will consider buying Eon's next offering, if it comes at an attractive level. Richard Woolnough, the fund manager for the firm's £200 million corporate bond fund, he declined to say what that level would be. The firm recently re-entered the utilities sector buying RWE's last offering--a 6.375% of '13, which was priced at 105 basis points over gilts. "We had no exposure to utilities, because we knew new supply was coming, which was weighing on the sector. [The new issues] allow the fund to finesse its way back into the sector at attractive levels," says London-based Woolnough.
Woolnough has liquidated all the telecom positions in the fund, selling the balance of the holdings--France Telecom and mmo2--off last month. "We sold telcos because the investment environment for telco credits is deteriorating: one because the ratings agencies have done, and will continue to do, a poor job in relation to rating telco debt and two, because we can see telecom debt suffering from supply-demand imbalance," he says. The weight of forced sellers will soon outpace demand for telco paper, he predicts. "The depth of the market isn't big enough when faced with the heavy load of debt issuance the markets had to take on board over the past two years," he adds.
Elsewhere in the portfolio, Woolnough has been buying defensive names, such as U.K. retailers and banks that have limits on how much they can issue. For example, the portfolio holds Marks & Spencer's 6 3/8% of '12, Sainsbury's 6 1/8% of '17 as well as upper and lower tier-two bank debt from Royal Bank of Scotland, Barclays Bank. "In the current environment, we're spending more of our time focusing on the things we don't want to own," says Woolnough, adding that when attractive new issues come out, he would consider buying them. The fund, which is benchmarked against a peer group benchmark and the FT Actuaries all gilt index, is a concentrated portfolio of 35 to 40 securities.
