Margaret Patel, portfolio manager of a high-yield fund with Boston-based Pioneer Investment Management, says her firm is concentrating on four sectors: energy, healthcare, paper and forest products and technology. She adds that her firm is staying away from high-yield telecom bonds, due to the continued credit deterioration in this sector. An internal policy bans investments in the gaming sector.
Patel likes the energy sector because she believes energy prices--despite the current downturn--will remain historically high and will not sink to 1998 levels. She owns the Pogo Producing 5.50% of '06 (B1/BB) notes which traded last Monday at 92.05. In healthcare, she likes companies that have exposure to pharmaceuticals given the attractive prospects for long-term demand in this industry. She currently holds, and may buy more of, Bio-Rad Laboratories 11.62% notes of '07 (B2/B): They were trading last Monday at 106.16. She says she likes the company because its growth is based on providing information for clinical research.
Patel says her firm believes the paper and forest sector is close to stabilizing and foresees a cyclical improvement for the next six to 12 months. Her bond of choice in this sector is the Stone Container 9.75% notes of '11 (B2/B), trading at 104.55 last Monday.
Patel manages a $560 million high-yield fund that has an asset allocation of two-thirds convertible high-yields and one-third straight high-yield bonds. By sectors, the allocation is 31% technology, 24% consumer cyclicals, 12% energy, 11% electronic, 8% paper and forest products, 8% basic material and 6% healthcare. The overall average credit rating for this portfolio is single-B. The average duration for the portfolio is 4.75 years.
