Invesco’s Kevin Egan has bulked up exposure to the European senior loans market to capitalise on company and country bets in the region.
The Citywire AA-rated manager upped exposure from 5-6% to 8-9% in the Invesco US Senior Loans fund over the first half of the year.
Speaking to Citywire Global, the Atlanta-based manager said, while the relative value gap has since narrowed between the US and Europe, there is a strong reason for pushing his off-benchmark allocation towards its 10% upper limit.
‘We moved a lot of it into the UK, as we continue to view that market as our preferred exposure in the region. We are very comfortable with the bankruptcy laws in the UK. Alongside Germany, it is also one of the more robust economies in the European market at present,’ Egan said.
‘The feeling is, despite the closing relative value gap, Europe has a lot to offer. In our global portfolio we tend to have a neutral weighting of 80/20 on North America/Europe but, earlier this year, we moved to 70/30, showing the conviction to have an overweight there.’
He pointed to positions in motor sports company Formula One and telecoms firm Virgin Media as two strongly-performing European plays in the portfolio.
Egan first hinted at upping his European exposure when speaking to Citywire Global in January. ‘We have followed up on our feeling at the start of the year,’ he said.
‘That proved to be a timely play as Europe is up about 2.1%, while the US loans market is up 1.6%, so we have captured that 50 bps outperformance. Being overweight in Europe worked over the past six months.’
Elsewhere in the fund, Egan has continued his trimming of casino companies, which began in January. This has fallen from 3.7% to 1.4% at the end of July.
This market, Egan said, has undergone severe difficulties caused by over-saturation and led to high profile casino closures in famed gaming resort Atlantic City.
Part of the reason could also be attributed to the sluggish performance of US consumers as Egan said spending has not filtered through into the economy, leading to difficulties for some large-cap consumer names.
‘We are looking at retailers and restaurants as areas to avoid, as the US consumer continues to struggle. The US consumers do not, seemingly, have the impetus at the moment to spend, we have seen that in the quality companies as well, with Amazon and Walmart’s disappointing numbers.’
‘While we are not seeing performance deteriorating, so to speak, we are not seeing the acceleration we would expect,’ he said.
Invesco US Senior Loans fund returned 20.35% in the three years to the end of July 2014. This compares to a rise of 17.7% by its Citywire benchmark, the Credit Suisse Leveraged Loan, over the same period. Both calculations are in US dollar terms.