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HSBC Sticks With Lower Rated Sterling Corporates

HSBC Asset Management in London will maintain full weightings in single-A and triple-B rated corporate credits through the end of the year.

Andrew Cope

HSBC Asset Management in London will maintain full weightings in single-A and triple-B rated corporate credits through the end of the year. Andrew Cope, head of U.K. fixed income, said the manager recently raised them from underweight to neutral. Cope's team runs £7.5 billion of sterling investments, including the £820 million HSBC Corporate Bond OEIC (open-ended investment company), which in recent weeks increased its allocation to single-As to 32% and to triple Bs to 12.5%. The fund is benchmarked against the iBoxx Sterling Non-Gilt Index.

"Single-As and triple-Bs can still tighten further, whereas triple- and double-As are as tight as they can get," said Cope. He underweighted the higher-rated bonds to fund the move down the credit curve and also reduced his allocation to government securities from 12% to 5%. Cope will further increase the weighting of single-As and triple B-s only if valuations become more attractive. "We'll remain neutral for the time being and focus on specific names," said Cope.

The fund is underweight retail, because Cope does not feel bondholders receive adequate protection in this sector. "Retail is one sector where corporate activity is unlikely to be bondholder-friendly, as we saw with the recent takeover bid for Marks & Spencer," said Cope.

Conversely, Cope is overweight telecommunications because managements in this sector have privileged bondholder interests and Cope expects this trend to continue. He added: "Telecom ratings are likely to remain stable or go up a notch and valuations are reasonable." The manager holds bonds in British Telecom, France Telecom, Deutsche Telekom and Telecom Italia but declined to rank them in order of preference.

The fund invests in secured as well as unsecured bonds and is considering increasing its 9% allocation to securitizations. "Securitizations often offer a better spread and generate more reliable income streams," noted Cope. He is especially keen on the U.K. pub sector securitizations, but declined to say what kinds of assets he will be focusing on going forward.

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