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Why Neuberger’s $8bn bond fund has overweighted BB-rated
by James Poulter on Nov 02, 2012 at 12:21
Speaking at the Wealth Manager Retreat, Covode said: ‘The best total return opportunities in our market today are in BB-rated credits, especially credits we think can get upgraded to investment grade over the next two years.’
The fund is 7.18% overweight in BB or higher bonds and 3.68% underweight in CCC or lower. ‘While it appears to be defensively positioned it’s based more on relative value than on a fundamental outlook on the market,’ he said.
While BBs offer better value, Covode doesn’t see many opportunities elsewhere. ‘When we look at the rest of the market, B or CCC-rated credits, we’re not that enamoured with relative value there. They lack the spread tightening catalysts we see in the BB-rated credits. We like the market, we just don’t think B and CCCs are cheap enough.’
Companies issuing new bonds to raise capital have been popular with Covode and the team and he described them as a great way to selectively add value to client portfolios. ‘The new issue market has primarily been high quality companies refinancing existing debt and the new issues that we invest in tend to be structured right, priced right and trade well on the secondary market,’ Covode said.
The High Yield Bond fund has returned 10.35% since inception on an annualised basis, outperforming the Bank of America Merrill Lynch US High Yield Master II Constrained Index, which has risen by 8.9% a year in the same period.
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