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Carmignac’s AA-rated bond manager snaps up Italian banks

Carmignac’s AA-rated bond manager snaps up Italian banks

Citywire AA-rated Keith Ney is snapping up Italian banking bonds despite many of his peers running clear of the sector over concerns about the level of non-performing loans in the market.

Ney, who runs the Carmignac Securite fund, has 9% currently allocated to Italian banks, while financials is the largest credit exposure in the fund at 55.69%. Financials account for around one-quarter of the overall fund's assets.

Speaking to Citywire Selector's sister site Citywire Deutschland, the fixed income investor said, beyond Italy, that European banks as a whole are attractively priced.

‘We don’t see the position of the largest banks as being so critical. There are many small banks in Italy which are under-capitalised and which have come under pressure. These banks will need to be restructured and the big players in the market will come out ahead from this restructuring, as we have seen in the example of the Spanish banking market,’ he said.

Ney currently holds around 20% of the fund in cash, which has been built up through high profit-taking. He said the cash position was due to the difficulty in finding returns in the market due to central bank policy and the deleveraging of major European banks, which is set to continue.

‘The risks are being brought down, and the ECB is also helping the banks in a powerful way. That being said, we are only investing in the national champions, such as Banco Bilbao Vizcaya Argentaria in Spain,’ Ney said.

‘This bank entails only modest risk because it is focused on the retail side, rather than investment banking. Moreover, the bank was able to get through a depression in its home market, thus showing that it can also withstand crises. Additionally, banks in Italy and Spain are currently trading at a discount due to the political situation.'

Oversold commodities

Away from banks, Ney has 7.11% of the fund devoted to the energy sector and holds 4.79% of the fund in industrials. He thinks ‘fallen angels’ in the commodities sector look interesting and has around 2% allocated to companies such as mining company Freeport and oil company Anadarko Petroleum.

‘In the case of bonds of commodity producers, we pick out those companies which have sufficient balance sheet strength to withstand crisis periods. Because many institutional investors have been automatically forced to close out their positions in the bonds of commodity producers as ratings have fallen from investment grade into high yield, we see return opportunities.’

‘We believe that these companies are currently oversold and that the discount is making them attractive now. There will, undoubtedly, also be many companies which go bankrupt. In our view, however, the market is pricing in too many corporate insolvencies,' he added.

The Carmignac Securite fund returned 6.6% in euro terms over the three years to the end of June 2016. This compares to a rise of 4.1% by its Citywire-assigned benchmark, the FTSE MTS 1-3 Years at 17H30 CET, over the same timeframe.

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