The ‘recession proof’ gaming industry in the US has failed to deliver on its high growth expectations causing senior loans specialist Kevin Egan to substantially cut his exposure.
The Citywire AAA-rated manager, who runs the Invesco US Senior Loans fund, said he had begun trimming bets here despite widespread bullishness for casino and gaming company growth.
Speaking to Citywire Global, Egan, the second best performing US bond manager over the three years to end of December 2013, said he had cut gaming exposure from 7.5% at the end of 2011 to 3.76% in the most recent available data.
‘We have been substantially reducing our gaming exposure. It was always viewed as a recession resilient sector and discretionary spending held up in difficult times. This was expected to come back very strongly once the economy fully recovered.’
‘However, we have taken down our exposure quite substantially because what we are seeing in the monthly revenue reports has not been matching that. It had been a very popular area but, for us, it has not delivered on that promise.’
Strong new issuers
Atlanta-based Egan, who invests in adjustable rate senior loans, has instead invested in areas such as food and beverage and television, which have seen strong growth in advert revenues.
In addition, Egan said recent strong issuance in areas such as property and computer gaming and software were proving particularly attractive.
‘There have been some very high quality deals which have come out to the market in the B-rated range,’ he said.
‘We have seen companies such as Hilton and Activision, which are both strong BB companies, come out with very large deals. Because of the size of the deals, they have issued at a bit of a premium in order to clear and that has helped us to get allocations here.’
Looking beyond current market conditions, Egan said one of the most attractive areas to investigate in the coming year will be the European market.
‘One area of potential interest, where we continue to see good value, is in Europe. In the fund we have the capacity to invest in the European market, which is trading at a discount to the US market of around 50-60 bps.’
‘There are a lot of exciting ideas here and it is something we are going to look at adding. There are European companies issuing in euros but also some issuing in US dollars, which means we can invest in them.’
The fund is predominantly focused on the US and Canadian markets, which currently make up 80% of total exposure, although it has the capacity to invest up to 10% in Europe. This currently sits at 5-6%, Eagan said.
The Invesco US Senior Loan Fund A USD has returned 21.7% over the three years to the end of December 2013. This compares to a rise of 18.25% by its Citywire benchmark, the Credit Suisse Leveraged Loan index, over the same period.