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Aviva Investors' Higham: Insurance bonds are better value than banks
by Drazen Jorgic on Dec 08, 2010 at 13:54
Aviva Investors fixed income fund manager Chris Higham believes the debt from insurance companies represents better value than banking bonds.
Higham, who manages a number of funds for Aviva, including the £91 million Strategic Bond fund, says the financials sector still provides the most attractive opportunities for corporate bond investors.
While Old Mutual Asset Managers Corporate Bond fund manager Stephen Snowden and Aegon’s Phil Milburn have been vocal about the opportunities in the debt of mainstream UK banks, Higham believes insurance bonds look more attractive.
‘We still believe financials are the main area of opportunity. While it has had a great run and we’ve taken some risk off the table, we have tended to focus more on insurers than banks. Banks have been in the epicentre of the storm but insurers were equally beaten up,’ he said.
Having launched the Strategic Bond fund a week after the collapse of Lehman Brothers, Higham went on to buy Aviva bonds for 25p in the £1 and Old Mutual debt for 16p in the £1. ‘Old Mutual is now 85p in the £1 and while we are probably never going to see these types of returns from the asset class again, there are decent opportunities still out there,’ he pointed out.
While most of the bellwether names in the insurance industry were hit during the financial crisis, including the likes of Axa, Legal & General and Standard Life, Higham says a number of them look attractive on current yields. ‘We still think Axa bonds at 8% will prove to be a good investment over the next five years.’
Over the past few months, Higham has reduced his risk and increased his cash allocation to 10%, which is effectively his highest permissible level.
This has taken his financials allocation down from 40% to around 28%. The concerns about the European sovereign debt situation, as well as Chinese policy and the US housing market, merit his cautious stance. He is also keeping a high cash weighting in the hope of further intervention in the markets by the authorities.
He says: ‘Financials will be the main area but we also have to accept there will be bumps along the road. At some point we are going to jump back into the markets.’
If the bond markets continue to experience the kind of weakness and uncertainty that has prevailed over the past few months, Higham believes politicians will intervene.
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