Greek and Spanish convertibles get AA-rated manager's backing

The dark cloud surrounding the Greek and Spanish economies is obscuring the judgement of many managers who are missing out on promising convertibles from the two countries, according to leading convertibles manager Xavier Hoche from Oddo Asset Management.

Despite the countries struggling bond markets, Hoche believes convertibles can offer decent returns as long as they are independent from any government ties, especially when it comes to Greece.

‘Managers will see the word Greece and believe it should go straight to the rubbish bin – but it’s not always the case’, says AA-rated Hoche who runs the Oddo Convertibles fund.

‘We didn’t think Greece would go so low as we thought Germany would come in sooner but we kept the corporate holding Intralot and it proved a good choice. At times you have to stick to your beliefs even if the market does not value it.’

Although registered in Greece the Intralot holding, a lottery software company, carries out less than 10% of its business in the Mediterranean country with the majority of its trade in Europe.

Another holding which has proven a shrewd investment choice for Hoche is Spanish construction firm FCC, especially since the precariousness of the country’s construction market has meant many people have shied away from investing in the sector.

According to Hoche, anything linked to the construction industry in Spain is being questioned but a closer look is needed to see the opportunities. The FCC group has a diverse range of activities, aside from construction, one of them being environmental clean up operations which is an important part of its business.

‘The convertibles that have a high rating are over-valued. The unrated ones are cheaper so if you want value for money you have to go out of the investment grade,’ he said.

The Paris-based manager adopts a bottom-up approach, avoiding many macro-orientated positions while ensuring the portfolio still reflects the overall economy.

‘I focus on a conviction based strategy and not the indices. Our concentrated portfolios are completely separate from any index.

‘A simplistic approach is key, a pure fund construction is important and we always respect the convex profile of the fund. We want to make the portfolio as simple as possible.’

The tide has changed in the last few years, according to Hoche, as the industry has witnessed a widening of its client base; a change which has delighted the fund manager.