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U.K. Manager To Consolidate High-Yield Credits

F&C Asset Management in London is looking to scale back the number of high-yield holdings from 110 to closer to 70 in the coming months, according to Roman Gaiser, investment manager responsible for the firm's €1 billion in European high yield.

Roman Gaiser

F&C Asset Management in London is looking to scale back the number of high-yield holdings from 110 to closer to 70 in the coming months, according to Roman Gaiser, investment manager responsible for the firm's €1 billion in European high yield. "Whereas in 2003 and 2004 it was a case of a rising tide lifting all boats, those days are over," he said. While 2005 is off to a good start--up 1.6% year to date--and Gaiser expects high-yield returns to be robust for the whole year, he expects outperformance to be more dependent on bond selection this year. Gaiser is looking to consolidate the number of different credits he holds over the coming months. "In 2004 we were ramping up a new fund and had to get money into the market; now it's time to focus our bets and avoid sectors and companies with greater downside risk," said the fund manager.

He highlighted the automotive sector as one likely to experience downward pressure on bond prices. Several companies in the sector, including Tower Automotive and CB Bus, are undergoing significant restructurings. The fund manager is also more cautious on companies vulnerable to large currency swings, such as Head Holdings or Remy Cointreau, both of which have manufacturing concentrated in Europe but large markets in the U.S. or Asia.

On the flip side, companies that are likely to clean up their balance sheets and delever given the continuing benign credit environment include Waste Recycling, British Airways and Alstom. Gaiser also favors the defensive nature of companies not exposed to exchange-rate fluctuations, such as the U.K.-based do-it-yourself company Focus, which last week announced plans to refinance its balance sheet.

Overall, F&C is about 60% invested in single-Bs and 10% in triple-Cs with the balance mostly in double-Bs. "Euro-denominated single-Bs look to be the most attractive at the moment, with potential for spread tightening exceeding European double-Bs and both single- and double-Bs in dollars," said Gaiser. The funds are benchmarked against a range of indices including the Merrill Lynch European Currency High Yield Index and customized Lehman Brothers indices.

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