Wilmont switch to Europe

Axa Wealth global high-income manager Andrew Wilmont has been adding to European high yield and reducing US high yield in the £59.7m Axa global high-income fund.

Speaking at the Cofunds investment forum in Hertfordshire last week, Wilmont said he has reduced the fund’s US high-yield exposure from 81.5 per cent at the end of August to 81 per cent at the end of September and raised European high-yield exposure from 13.5 to 15 per cent.

He said: “On average, the premium, the spread differential between European and US high-yield bonds, should be at 1 per cent.

“Over the last couple of months, European high yield has got cheaper and we have reduced our underweight. The premium in September was 2 per cent.”

Wilmont said he expects the high-yield default rate to creep up from between 1.5 and 2 per cent to between 2.5 and 3 per cent next year.

He said: “It could be a difficult macro environment in 2012 and it could be that companies get too optimistic and overexpand and default.”

Bestinvest senior investment adviser Adrian Lowcock says: “European high-yield bonds are pricing in a more negative scenario than the US and Europe is also a narrower market and more illiquid.

“This means that when risk aversion is high, as it is at the moment, the prices fall and yields come out, so the European market tends to be more volatile than the US.”

Dennehy Weller & Co managing director Brian Dennehy says: “European high yield is cheap relative to US high yield but that is not a reason to buy. The problem remains for retail investors that high yield is highly correlated with the stockmarket. Investors in European high yield are hostages to the fortunes of the eurozone.”