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Four managers hitting the heights in HY

Citywire Investment Research unearths the fixed income managers to follow.

Market Overview

High yield bonds as an asset class has 199 managers with a rating this month. Only nine managers hold our highest AAA rating this month, with 21 holding a AA rating, 59 holding an A rating and 110 holding our Citywire + rating.

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Highest New Entrant

Fund Manager: Sebastiano Pirro, Algebris Investments

Rating: AA-rated

Overview

This month’s highest new entrant in the corporate bonds asset class is Sebastiano Pirro of Algebris, who comes into our ratings with a AA rating. Pirro has run the Algebris Financial Credit I EUR Acc since September 2012 and is the sole fund he runs in our database.

Pirro is a large fan of contingent convertible bonds (CoCos) with the instrument comprising 74% of his financial credit portfolio. Unicredit and Intesa Sanpaolo, which are Italy’s largest and second largest banks, respectively, have the highest individual exposure in the portfolio with 9% and 8% allocated to the institutes correspondingly. Barclays is his third largest venture with 7% allocated to the British multinational bank.

Despite any political risk, the UK is Pirro’s largest bet by region with 22% of the portfolio allocated there, compared with 17% in Italy and 15% in Spain.

Top contributors to the fund’s performance for the month were Unicredit, Inesa Sanpaolo and Santander. Pirro maintained his positive outlook on AT1s as they offer the best return profile, according to his monthly commentary.

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Comeback Star

Fund Manager: Sean Feeley, Barings

Rating: AA-rated

Overview

Sean Feeley of Barings is our comeback star this month achieving a AA rating for the first time since July. The funds contributing to his rating are the Barings Global High Yield Bond F USD Acc, the Barings Global High Yield Credit Str S EUR Acc, the Barings Global High Yield Fund;Y and the MassMutual Premier High Yield Fund;Service.

The Barings Global High Yield Fund, which is co-managed by Mike Freno, Scott Roth, Craig Abouchar and Martin Horne, focuses on high yield corporate debt issues of North American and Western European companies.

The fund’s largest exposure is to senior unsecured bonds, which comprise 66.2% of the portfolio. The second largest exposure is to senior secured bonds at 29.4% of the portfolio.

Feeley finds many opportunities in the US with 73.83% of the portfolio allocated to the world’s largest economy. The disparity is obvious when compared to the 11.3% allocated to the UK, its second largest country in the portfolio.

In terms of debt quality, 48.9% of the portfolio is invested in B rated debt, 27.5% in Ba and 16.74% in Caa and below. At the company level, recreational goods company Brunswick is the largest individual holding in the portfolio at 3.3%.

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One to Watch

Fund Manager: Konstantin Leidman, Schroders

Rating: AAA-rated

Overview

Konstantin Leidman of Schroders is the one to watch this month, having achieved his sixth AAA rating this year. His latest rating follows a string of AA-rated performances from July through to October. The fund contributing to his rating is the Schroder ISF EURO High Yield A Acc that he has managed, along with his team, since November 2012.

Leidman has returned an impressive 22.5% over three years compared to the average manager’s 15.1%. In his Euro High Yield fund, he is largely underweight BB bonds relative to the benchmark, with 35.3% exposure compared to 73.2% in the benchmark. Leidman is heavily overweight BBB rated bonds, with 10.8% allocated there compared to 0.6% in the benchmark.

He is currently confident in the UK and the US, as he is overweight 12% and 0.8%, respectively. However, he avoids France and Germany being underweight 6.6% and 5.3%, respectively.

The fund’s largest sector is industrials with 57.2% of the fund invested there, yet it is still underweight with 75.7% invested in the benchmark. Leidman’s largest investment is in Wind Tre – an Italian mobile operator – with 2.8% invested there.

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Rising Star

Fund Manager: Robert Cignarella, PGIM Investments

Rating: AA-rated

Overview

PGIM Investments’ Robert Cignarella is this month’s rising star, having risen to AA for the first time. This follows a quick run of rises as he was rated Citywire + in August, A in September and October and now holds our AA rating.

He runs the PGIM Broad Market U.S. High Yield Bond Acc, the PGIM European BB-B High Yield Bond Acc, the PGIM European High Yield Bd USD Hdg I Acc and the PGIM U.S. BB-B High Yield Bond Acc Hdg.

He performed well in the Bonds – Europe High Yield sector outperforming the average manager with his performance of 24.99% compared to their 15.88%. He co-manages the PGIM European High Yield fund with Jonathan Butler who is also AA rated.

The fund uses a relative value, fundamental credit approach to select opportunities in the European high yield bond market. The relative value approach involves looking at the fundamental credit ranking and the yield expectation of issuers to asses which investment offers the best risk-adjusted return.

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