AXA Investment Management's London-based sterling team is looking to buy corporate bonds that offer relative value as spreads continue to register extremely tight levels.Denis Gould, head of the sterling investment-grade team, which looks after some £20 billion in assets, says, "This has been the year when most managers' favorite bet has paid off. Being overweight in lower-rated credit has paid off hugely this year. Relative value is going to be the key driver for next year."
Recently, Axa has added GMAC's sterling-denominated 6 5/8% of '10 and Cattles PLC's 6 7/8% bonds due in '14, which came at 170 over gilts. Gould says the theme behind buying these two bonds is to add yield. He has also bought BAT's 6 3/8% notes of '19, because he believes a new structure which ring-fences U.S. lawsuit risk is attractive for U.K. bondholders.
Gould says sectors that potentially will offer value are securitizations, in particular private finance initiative issuance, financials and autos. Gould is looking to add names that widen out in the secondary market, perhaps by overreacting of bad news. Standard Life and Friends Provident are examples on names Gould may add, while he believes Ford Motor Co. and General Motors could widen on volatility depending on the stability of the U.S. economy.
