RWC’s head of convertible bonds has upped exposure to the US and Europe but has reduced delta in his European exposure over fears of future volatility.
Citywire A-rated manager Davide Basile said he added four percentage points to his Europe exposure and three percentage points in the US in his RWC Global Convertibles fund over the past three months.
Currently, the portfolio is 25% invested in Europe and 43% in the United States, which is the biggest position of the fund.
‘The US is our favourite region as it is benefitting from its consumer spending growth and the oil price fall,’ he told Citywire Global. ‘The latest job market numbers have been the best data in the past ten years, despite the peak of layoffs in the energy sector.’
In the US, Basile favours consumer discretionary and technology names, while his approach in Europe is more nuanced.
‘Our allocation in Europe is very security-specific. We prefer dividend yielding companies which are benefitting from a weaker euro. These names tend to be concentrated in Germany,’ he said.
This selective approach has also seen Basile recently reduce his delta in Europe to shield the portfolio against any further, largely politically-driven, headwinds.
‘Political outcomes in the region are difficult to predict. Also, companies in the US tend to finance themselves through capital markets, while in Europe banks are still predominant. This means the transmission mechanism is weaker.’
Elsewhere in the fund, the Citywire A-rated manager has a 0.6% position in the energy sector, owning one single bond in this space.
Basile said his portfolio is mainly invested in investment grade bonds, while the new issuances in the energy sector were all high yield.
‘It has been great to avoid the area. Currently, there is value in the energy space but the credit quality of some companies is not good,’ he said.
Decrypting the Fed
Basile expects the Federal Reserve to raise interest rates in the summer, as soon as wages start to increase. But he added that the central bank's communication is confusing.
‘In order to understand the Fed rhetoric, it’d be more useful to hold a degree in English language rather than in economics. Nevertheless, we do think the hike will happen pretty soon.’
Over the 12 months to the end of January 2015, the RWC Global convertibles fund returned 6.34%. This is while its Citywire-assigned benchmark, the Thomson Reuters Global Focus Convertible index, rose 5.85%.