Rothschild Rotates Into Cyclicals

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Rothschild Rotates Into Cyclicals

London-based Rothschild Asset Management, which manages E3 billion in European fixed-income assets, is rotating out of swaps-related credits into cyclically sensitive names further down the credit spectrum. Adrian Grey, director, says swaps-related names, for example agencies, have tightened as far as possible and now the firm is looking to buy new issuance. Most recently, the firm bought Hilton Group's 6.5% of '09, a new issue, and sold a variety of maturities of German mortgage-backed securities, or Pfandebreifes. Grey says he will look at new issuance from investment-grade industrials when they become available.

Grey says the French OATei inflation-linked bonds represent good value versus conventional bonds. In particular, he likes the 3% of '12, which has a real yield of 3.25%. "The OATei's are attractive and they are a more defensive instrument than conventional bonds, benefiting when inflation is surprising on the upside, which it is," says Grey. He adds these bonds are good value with real yields above 3%, but if they went lower he would consider selling.

Grey also sees value in Eastern Europe. "The local markets of Poland and Hungary have done extremely well. I still think there is a big picture trade here. These guys will wind up being the Italy and Spain of 10 years ago," he says. He also like euro bonds from Bulgaria, Romania and Croatia.

Rothschild uses a range of benchmarks, including the J.P. Morgan Government Bond index and aggregate indices from Lehman Brothers and Salomon Smith Barney.

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