The time is right to shift out of investment grade credit and into high yield, according to OPM Fund Management’s Tony Yousefian.
The chief investment officer of the multi-manager firm has cut his OPM Fixed Interest fund’s investment grade exposure from 30% to zero. Yousefian has redeployed a chunk of the £25m fund’s assets into sub investment grade credit, and it now makes up 16% of the fund.
The Fixed Interest fund can invest along the whole spectrum of assets within fixed income. Yousefian says: “The fund goes up and down the yield curve, and uses every instrument available in fixed interest.”
In January 2008, the manager removed all the high yield exposure from the fund, but in November he began to buy back into the asset class. “Bar bank debt, at the investment grade end… most of the low hanging fruit has now been picked,” he says. “However, there is really good value in sub investment grade, which has been very oversold.”
He has switched completely out of the M&G Corporate Bond fund, managed by Richard Woolnough, into the M&G High Yield Corporate Bond fund, run by Jim Leaviss.
This was not only a call on the asset class, but reflects Yousefian’s fears over capacity issues in Woolnough’s fund.
“We were supporters of Woolnough, but were concerned about the amount of money the fund was taking. It was becoming hard to manage, and could only have gone into new issues in the market, which was a concern,” he says.
Sellers of bank debt have now become buyers of it, and Woolnough will not be able to buy enough of it to outperform because the fund is too big, Yousefian says. The fund’s performance has slowed against its peers over the last three or four months because of this, he adds.
Meanwhile, Yousefian bought Stephen Snowden’s troubled Old Mutual Corporate Bond fund in the last two months. “The fund was absolutely bombed out due to its holdings in bank debt.
“We had been supporters, but we sold out two years ago when the fund was having problems. Snowden sat in bank debt because he couldn’t sell it, and suffered horrendous redemptions. But now we have started to see redemptions slow,” he says.
“We had kicked out bank debt, but from April we have added it again. There was a clear message that the banks could not go bust, and that was our signal to go back in,” he adds.
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