Insight Investment, which manages £8 billion in predominately sterling-denominated corporate bonds, is looking for signs the S&P 500 has started to rebound and can maintain its gains before adding riskier credits to its portfolio. David Cryer, fund manager, says some market-watchers indicate a level of 660 for the S&P as the point where the markets should begin an upward trend. However, with the S&P at 825 last Monday, he says it is important to start putting on positions beforehand.
"We're still concerned about the downgrade versus upgrade ratio in corporates. If we see a recovery, I would slant to more triple-B names, more cyclical names and have more risk in the portfolio," he says. LaFarge and Aggregate Industries are basic industry cyclical names he may consider adding.
For the time being, Cryer says his favorite sectors are food retailers, utilities, certain financials and non-cyclical industries, for example, tobacco. Recently, he added the new issue from Carrefour, the global supermarket chain. He has also bought the utilities RWE and E.on. In addition, Cryer says he bought the new GlaxoSmithKline issuer earlier this month as a defensive position.
Cryer says he has reduced the portfolio's exposure to tier-one financials and insurance companies. "I'm quite happy to buy financials, but in a specific area such as lower-tier two," he says. The reason is Cryer is concerned about the amount tier-one financials may issue in the near-term and thinks spreads should hold in better for tier two names. Insight Investment uses the Merrill Lynch 5-15 year all investment-grade index as its benchmark.