Glasgow, Scotland-based Britannic Asset Management will buy corporate credits when values arise in the market. The firm, which invests primarily in sterling-denominated bonds, has been adding corporates opportunistically to its $8 billion fixed-income portfolio. It recently added Tyco International's euro-denominated '04 and '08 on the back of recent widening and WorldCom's '08 sterling issue when it hit the low 90s earlier in the month. "The bid/offer spreads were pretty poor--as they say: you could drive a horse and carriage through them," says David Roberts, head of credit, of the WorldCom bonds.
Britannic devotes just under $5 billion of its total portfolio to corporate paper. On a sectoral basis, Roberts likes U.K. core retail banks such as Halifax Bank of Scotland, Royal Bank of Scotland, Lloyds TSB and Northern Rock. He has also recently added to the portfolio's media holdings with Pearson's '08 and '14 and the Daily Mail's '13 and '21s, because of both companies' strong numbers despite a decline in advertising revenue. He has also bought Enterprise Oil's '13s as a cyclical play betting that once the global economy begins to recover, especially in the U.S., oil prices will likely go up. Enterprise has also delivered on its plans to increase production in the North Sea, he notes.
In general, Britannic has been putting new cash to work and Roberts believes that on a five- to10-year view corporate bonds are a good value despite spreads being quite tight. Especially in the U.K., now that pension funds are increasing looking increase their allocations to corporates, the market should continue to be supported. Britannic is looking at new issues at on a case-by-case basis. Roberts would like to see more new issues from industrials and financials. Recently, he added a new issue from UPM, a paper company, and BNP Paribas. He likes industrials because he believes they will benefit from the improving global economic outlook and banks because, despite appearing expensive, they are relatively cheap if considered on a three- to five-year outlook. Britannic uses a variety of indices and also benchmarks its portfolio against its peer group.
