Citywire A-rated Ben Pakenham has increased the beta of his blockbuster European high yield bond fund as he believes investors should be looking to add risk in the current market.
Speaking to Citywire Selector, Pakenham said he had increased his allocation to cyclical sectors, namely industrials, materials and commodities in the €840 million Aberdeen Global – Select Euro High Yield Bond fund.
Pakenham, who previously said his short-call approach had served as a ‘bulletproof’ way to ride out high yield volatility, said he made the moves over the past month as he does not expect default rates in European high yield to rise rapidly.
‘In February we had 10% in cash, we had some bonds called and taken out, and we decided to reinvest this capital into high beta and more cyclical names, which was in places such as materials and commodities,’ he said.
‘The thinking is that we should be adding risk and the reason for that is we are in situation where we don’t see fundamentals deteriorating or the market collapsing. So in those instances, we are more inclined to take risk.’
When asked about the impact of hardships in the US high yield market, Pakenham said it had little bearing on the European market and could, in fact, lead to improved sentiment.
‘We have seen pressures in the US market, which is a positive for the European market, in many ways. As it will aid European growth, with the strong dollar against a weaker euro, and commodities are in a position where they have potentially bottomed and growth in demand.’
Elsewhere, Pakenham said he also bought back an additional tier one bond which he had previously sold at a higher price, which was an off-benchmark allocation.
Demands on Draghi
Commenting on expectations for today’s ECB meeting, where many market participants and fund selectors are eyeing a further easing of monetary policy, Pakenham said he agreed with the need for increased action.
‘We are expecting further accommodative measures from the ECB, this will be a further widening of negative deposit rates and QE will be expanded, as a minimum. The only real way it could have an impact is if the negative rates expands by more than 10bps in my view.
‘Also, if they expand the programme to cover corporates bonds and senior financials bonds, we think that is less probably but would mark a real change. There could be more liquidity offered through the little-discussed LTRO programme, which would aid banks given the recent headwinds.’
The Aberdeen Global – Select Euro High Yield Bond fund returned 14% in euro terms over the three years to the end of February 2016. This compares with a rise of 13.5% by the BofA Merrill Lynch Euro HY Constrain TR EUR over the same timeframe.