Two high-yield portfolio managers say they no longer see value in the high-yield homebuilding sector, but a respected sell-side analyst says it is too soon to reduce exposure. One East Coast manager of over $1 billion says he is considering reducing exposure because he is concerned that eventual rate hikes by the Federal Reserve and a still cloudy unemployment picture could cause demand for homes to slacken.
Robert Manowitz, homebuilding analyst at UBS Warburg and the top-ranked analyst in his sector, says the sector is still a good place for investors to wait out market volatility. "I don't expect spreads to tighten much further, but investors are compensated because of the sector's tangible asset values, strong earnings visibility, conservative balance sheets and healthy demand for homes."
Last Thursday, benchmark homebuilder D.W. Horton's bellwether 8.5% notes of '12 (Ba1/BB) were at 103, unchanged from the previous week, and slightly above its late-May level of 102.25.