S&P Capital IQ Fund Research - US Fixed Income Fund Managers Still See Value
in Credit Markets
LONDON, Feb. 11, 2013
LONDON, Feb. 11, 2013 /PRNewswire/ -- US fixed income fund managers continue
to see value in the credit markets as a whole, although parts of it are deemed
expensive, says S&P Capital IQ's Fund Research in its latest sector trends
paper, available at www.marketscope.com.
"Most of the fund managers we interviewed were overweight spread product
relative to their indices, but this is a structural feature of the US fixed
income fund sector, particularly for funds managed against aggregate indices,"
observed Kate Hollis, S&P Capital IQ fund analyst and sector head of fixed
Many managers were overweight financials, which were still yielding more than
industrials, and many (such as Pioneer) were aiming to move up in credit
quality where this was possible without sacrificing too much yield. Many
investment grade funds had bought small amounts of crossover high yield names,
to produce extra yield and increase the potential for spread tightening should
they be upgraded.
Corporate balance sheets are strong, as are earnings, and default rates are
likely to stay low. Technicals are still supportive and BlackRock noted that
any sell-off in credit markets would be met with further buying; at the short
end from investors looking to switch out of cash, and at the long end from
Managers believe spreads are still likely to shrink in 2013 but most of the
return will come from income. However, MFS Investment Management pointed out
that some industrials are back to the same spreads as in 2006.
AllianceBernstein agreed that valuations are tight but that carry and
roll-down will continue to add extra return until the long end of the Treasury
market begins to back up.
Meanwhile, a large leveraged buyout (LBO) of Dell has sparked credit analysts
to review their sectors for other potential buyout candidates.
Many groups were overweight agency mortgage-backed securities (MBS) as they
believe the Fed will keep prices supported to avoid any rise in mortgage rates
slowing the housing market again. Although agency pass-throughs are negative
convexity instruments, most managers believe any rise in volatility this year
will be associated with politics and will be temporary. Many managers also had
small amounts of commercial mortgage-backed securities (CMBS) on which they
were starting to take profits. However, T Rowe Price is letting its MBS
positions diminish naturally and reinvesting in asset-backed securities to
reduce the pre-payment risk.
Stefanie Ives/David Sells, Citigate Dewe Rogerson: 0207 282 2815/63
S&P Capital IQ, a brand of the McGraw-Hill Companies (NYSE: MHP), is a leading
provider of multi-asset class data, research and analytics to institutional
investors, investment advisors and wealth managers around the world. We
provide a broad suite of capabilities designed to help track performance,
generate alpha, identify new trading and investment ideas, and perform risk
analysis and mitigation strategies. Through leading desktop solutions such as
Capital IQ, Global Credit Portal and MarketScope Advisor desktops; enterprise
solutions such as S&P Securities Evaluations, Global Data Solutions, and
Compustat; and research offerings, including Leveraged Commentary & Data,
Global Market Intelligence, and company and fund research, S&P Capital IQ
sharpens financial intelligence into the wisdom today's investors need.
S&P Capital IQ fund research: A fund report is not investment advice, a
financial promotion or a recommendation to purchase, hold, sell or trade any
security. A report should not be relied on when making an investment decision
as the report is for information purposes only and not tailored to a specific
investor. Past fund performance is no guarantee of future performance and we
accept no responsibility if, in reliance on a report, you act or fail to act
in a particular way. Our fund management reports are continuously monitored
and updated reports are posted to www.marketscope.com
© 2013 McGraw-Hill Financial, 20 Canada Square, Canary Wharf, London, E14 5LH
Tel: +44 (0)20-7176 3800. All rights reserved.
SOURCE S&P Capital IQ
Press spacebar to pause and continue. Press esc to stop.