Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Bond star Pakenham reveals ‘bulletproof’ HY strategy

Bond star Pakenham reveals ‘bulletproof’ HY strategy

The short-call part of the European high yield bond market has provided protection and performance during a time of increased uncertainty among fixed income investors, Aberdeen’s Ben Pakenham has said.

Pakenham upped exposure to short-call bonds – those which a company can call at much short notice – in his €718 million Aberdeen Global – Select Euro High Yield fund over the past two years.

The Citywire AA-rated manager said he has allocated as much as 25% of the fund in bonds of this nature, which has lessened the beta and duration of his European high yield bond fund.

‘One of the biggest contributors to performance has been our large exposure to short call bonds,’ he told Citywire Global.

‘These are usually older, high coupon bonds which maybe mature in three or four years but make up increasing sense for the big companies to call them over the next year or 18 months in order to lower the coupon and lower the cost of debt.’

Pakenham said this exposure had been particularly important since the start of the year, during a period which saw government bonds and US high yield bonds come under increased pressure.

‘That has worked out exceptional well for us and, even with the market volatility, this strategy has been bulletproof. There is very little credit risk involved and very little interest rate risk from these positions,’ he said.

Going for quality

While volatility has had an impact on the wider market, Pakenham now believes it is time to add higher quality names to his portfolio. At present he has over 60% of the fund invested in bonds rated B or lower but has added to his BB-rated exposure.

‘What we have done more recently is try to take advantage of the opportunities in the BB part of the market. They have come under pressure in the wake of government bonds, notably bunds, moving about quite heavily.’

‘So we have entered the market and looked to increase the overall credit quality, we have reduced some positions and upped BB-rated exposure from around 10% to 20% over the past few months,’ he said.

The fund year-to-date has returned 4.6% in euro terms while its Citywire-assigned index, the BofA Merrill Lynch Euro HY Constrain TR EUR, rose 2.96% over the same period.

Over the three years to the end of July 2015, the fund returned 31.9% in euro terms against an index rise of 33.4% over the same period.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Luxembourg Forum

    Citywire Luxembourg Forum

  • Citywire DACH 2017

    Citywire DACH 2017

  • Citywire Italy 2017

    Citywire Italy 2017

  • Citywire Berlin 2017

    Citywire Berlin 2017

  • Citywire Miami 2017

    Citywire Miami 2017

  • Citywire Professional Buyer

    Citywire Professional Buyer

  • Citywire Madrid 2017

    Citywire Madrid 2017

  • Citywire Switzerland Retreat 2017

    Citywire Switzerland Retreat 2017

  • Citywire Amsterdam 2017

    Citywire Amsterdam 2017

  • Citywire Frankfurt 2017

    Citywire Frankfurt 2017

  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2017

    Citywire DACH 2017

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016