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| Craig Abouchar |
ING Investment Management is looking to increase high-yield investments in communications names and decrease exposure to utility companies, said Craig Abouchar, portfolio manager of ING's €2.1 billion in global high-yield in The Hague. ING manages its institutional portfolios against a combination benchmark of the Lehman Brothers U.S. high-yield and pan-European high-yield indices. The Dutch asset manager favors communication and media names, which constitute an 8% overweight in the portfolio and could increase to 30% from the current 25%. "The business plans of European cable companies like Telnet and Kabel Deutschland are sound and these names offer attractive yields relative to similarly rated credits. KDG is currently trading north of 10% versus sub 8% on the average single-B issue," noted Abouchar. He also sees good value in U.S. television and radio broadcasting companies Gray Television and Nexstar Broadcasting, which are benefiting from increased advertising revenues on the back of the pending U.S. presidential elections and the summer Olympics.
On the flip side, the fund manager will further reduce exposure to unregulated utilities, currently at 9% of the portfolio versus 12% of the benchmark, if further weakness develops. "There has been little operational improvement in the utility sector, and it's questionable whether companies like Calpine will be able to fund its capital structures longer term," said Abouchar.
From a rating perspective, ING is considering moving further up the quality spectrum as interest rates continue to rise by shifting money out of triple-Cs and into single-Bs. Single-Bs are already 60% of the portfolio and a 12% overweight relative to the benchmark. "In a rising rate environment, triple-Cs are very exposed to reductions in liquidity; back in '94, for example, triple-Cs lost almost 12%, dramatically underperforming both double-Bs and single-Bs which were down less than 1/2%," noted Abouchar. He plans to reduce exposure in triple-C senior paper, where default risk is much higher, while concentrating his remaining triple-Cs in subordinated holdings of higher rated companies.
On the whole, Abouchar is focusing on diversifying ING's high-yield investments, as he sees little upside to taking on large amounts of issuer specific risk. "I don't see any individual name doing incredibly well in the coming months but lots of names will do pretty well, and with spreads where they are, I'd rather be sure to limit my potential downside," was his rationale. ING has increased the number of names in high-yield by 30% compared to a year ago, and continues to see better value in the primary than the secondary market.
