A Hedge Fund Manager in Norway Says Junk Rally Is Far From Over

It’s not over yet.

There’s room for the high-yield bond market in Norway to rise even further, according to Borea Asset Management AS, a hedge fund manager.

“Spreads can continue to narrow,” Willy Helleland, chief investment officer at Borea, said by phone on Tuesday. “There’s still more to catch up on spreads, at least in our segments.”

Norway’s junk bond market has continued to rally in 2017. Since its low in March last year, the DNB High Yield Norway Total Return Hedged Index has risen 36 percent to an all-time high.

Borea, which manages about 2.3 billion kroner ($290 million) in high-yield debt, sold all its oil-service bonds in 2013. That helped the Borea Hoyrente fund to return, on average, 8.1 percent a year since its inception in 2012.

“We’re very skeptical about oil services,” Helleland said. “It’s difficult to be positive on the oil price. We’ve preferred to buy industrial companies in Sweden and Denmark to spread the risk.”

It’s also shunning fish farming companies, which have benefited from a doubling in salmon prices over the past five years and issued debt at rates that were “too low” to be of interest to the fund. Borea Hoyrente’s largest holdings are zircon and titanium company Tizir Ltd, LNG carrier Gaslog Ltd and Norwegian savings banks.

“You get well paid for lending money,” he said. “Lending money at 5-6 percent interest rate to good companies gives a very good risk/reward.”

The fund is normally leveraged to 120-130 percent, which means it’s borrowing money to boost returns, and is adjusting its risk by investing in “safer” bonds with an average rating of BB. While Helleland is still mostly avoiding the oil service sector, he bought BW Offshore Ltd. after its restructuring.

“We look for stable companies with a long-term view,” he said. “We hunt for certainty -- safe cash-flow, stable operations or collateral.”

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