Pimco’s Kiesel Recommends Health Care, Asian Gaming Company DebtMatt Robinson
Mark Kiesel, deputy chief investment officer at Pacific Investment Management Co., sees bonds of health-care and Asian gaming companies outperforming the broader market because the industries are difficult for new entrants to crack.
“We believe investing in companies with strong barriers to entry is even more important today given increasing regional differentiation and more compressed risk premiums,” Kiesel wrote in a report published today on Newport Beach, California-based Pimco’s website.
Casinos in Macau benefit from a limited number of gambling licenses and health-care companies operate in a “regulatory-intensive” environment, he wrote. Bonds of lodging, regulated pipeline and wireless-provider companies are also attractive, according to Kiesel.
“While an industry with high barriers to entry does not automatically generate excess profit, it does offer competitive shelter – and the higher the barrier to entry, the greater the prospect for above-average returns, in our view,” Kiesel wrote.
The Federal Reserve’s policy of keeping interest rates near zero since December 2008 has led to annualized gains of 9.1 percent in the Bank of America Merrill Lynch Global Corporate & High Yield Index. Yields on the index have declined to 3.38 percent from 8.21 percent since the end of 2008.
Investors should favor companies with proprietary brands, permits and real estate or land, according to Kiesel. Pimco, which oversees $1.97 trillion in assets, also recommends industries that are highly regulated and require high switching costs, or the extra money consumers pay to change to a competitor.
Pimco also recommends bonds of U.S. banks, railroads, media companies and satellite providers. Cable, cell tower and energy companies are also attractive, according to the report.
“We have refocused our bottom-up credit analysis on identifying industries globally with pricing power and/or compelling growth prospects - conditions that can foster the creation of ‘rising star’ credits,” Kiesel said.