Capital Invest, which manages roughly E4 billion in fixed-income assets from its Vienna office, will reduce its corporate bond holdings further if the economic outlook in the U.S. and Europe continues to deteriorate. Andreas Schuster, portfolio manager, says the firm currently devotes roughly 15% of its portfolio to corporate bonds, but will reduce that to 10% if the general picture emerging from Europe continues to worsen and there are signs of continued weakness in the U.S. for the fourth quarter. For example, worsening data from economic surveys, in particular, consumer spending, could prompt the move. The firm has been reinvesting its assets in European government and euro-denominated government bonds, and will continue to do so.
Capital Invest is overweight the core European countries--Germany, France and the Netherlands--and underweight everywhere else. Schuster says he is looking for swap spreads to widen in the near future on the back of trouble in financial sector and rising governmental budget deficits. He has been buying in the two- to 10-year part of the curve. Now he is taking some duration exposure, with the typical portfolio duration between five to six years depending on the benchmark used.
In terms of corporate bonds, Capital Invest is overweight energy and also some telecom names that it likes, because they did not buy licenses for new "third generation" (3G) mobile communications systems--especially the Greek, Spanish and Danish incumbents. Otherwise, the firm is buying investment-grade bonds, especially good triple-B names it considers to be improperly rated, such as Parmalat, Telstra, Singtel and Repsol.
