Money Managers Seek to Profit from Europe’s Woes

When Moody’s Investors Service downgraded Ireland’s sovereign debt to junk status on July 12, a week after giving Portugal’s debt similar treatment, it came as no surprise to Sandor Steverink. Europe’s best-performing government bond fund manager over the last decade, Steverink predicted both downgrades. Soon it will be time to buy, he says. “What we’ve learned from emerging markets is that you get only a full recovery after a proper restructuring,” says Steverink, who is co-head of a team managing €26 billion ($36.4 billion) at Dutch insurer Delta Lloyd. “We think that’s necessary for Greece and, in the end, probably for Ireland and Portugal, too.”

Of the two countries, “we prefer Ireland above Portugal,” he says, because Ireland’s debt burden was caused by the banks, not by “structural problems” such as heavy government borrowing and slow growth. He believes Ireland also has more potential to export its way out of trouble. Ina Goedhart, Steverink’s colleague, says the fund would wait at least a month before buying any Portuguese debt. Why? Many investors who can’t hold the bonds now that they have been downgraded to junk status will be forced to sell, pushing their prices down, says Goedhart.