Contingent convertibles - CoCos - have rewarded those who stuck with them in a year when single security selection is more important than ever, according to Standard Life Aberdeen’s Mark Munro.
‘All areas of credit markets have performed well this year with subordinated financials, long-dated US investment grade and emerging markets, in particular, being rewarding areas to be invested in,’ he told Citywire Selector.
AAA-rated Munro, who manages several funds at the firm including the SLI Global Total Return Credit fund, said the fund performed well despite allocations to companies heavily impacted by the French election earlier this year.
‘Within financials, CoCos have performed tremendously well and the fund found clear opportunities earlier in the year in the likes of SocGen (1.23%) and Credit Agricole AT1 bonds, which we believed were mispriced around the French election.
‘Within long-dated US positions, higher quality names like Anheuser-Busch InBev and high yield rated bonds from Arcelor Mittal and Pulte Group, a US house builder, all benefited the fund.’
Munro currently has 12.84% in high yield financials, with 46.27% in core high yield assets. He said credit markets have enjoyed a strong rally but generic opportunities had not been so obvious.
‘We view the market right now as becoming idiosyncratic, where name selection is more important than ever. In US high yield, where we have done some de-risking over the year, we do not like the very high-risk part of the market - low single 'B' rating or 'CCC'.
‘We are finding interesting opportunities in the BB- to B+ areas of the market, mainly in the telecom/cable/media sector that has endured a volatile period mainly on M&A related rumours and posturing.’
With many sectors going through structural change, Munro said the market has been extremely quick to create winners and losers affected by the shift.
‘Companies such as content providers and retailers, driven by the continued move to online consumption and in various cases the threat of Amazon, have been affected.
‘The market has been extremely quick to punish businesses they deem to be under pressure in this space, but this will be an area that will definitely throw up opportunities where certain debt issuers are mispriced,’ he added.
Over the three years to the end of October 2017, Munro lost 1.6% in euro terms in the Alt Ucits - Bond Strategies sector. This is while the average manager in the Alt Ucits - Bond Strategies sector returned 2.60%, over the same time period.