Strategic bond manager reduces high yield but builds up US position

Citywire AAA-rated Fatima Luis has reduced the high yield exposure in the F&C Strategic Bond Fund to 46 per cent, the lowest level in recent years.

Luis cited high valuations as the main reason for her decision.

“My decision to reduce the weighting in high yield from an average of 60 per cent last year was based on the fact that the valuations in high yield are simply not as compelling as they were two or three years ago. However, I do not foresee reducing them much further unless there are clear signals of an economic slowdown or a marked deterioration in credit fundamentals,” she said.

Luis said there were still good reasons to hold high yield, not least the ongoing activity surrounding mergers and acquisitions.

“M&A and corporate activity has continued at a strong pace providing support to equity markets, which also benefits high yield issuers.

“The top positions within the fund, which are dominated by the auto sector and names such as Porsche, which is close to acquiring mass auto manufacturer Volkswagen, and DaimlerChrysler, should continue to benefit from this surge in activity.” Luis has also built up an 11 per cent exposure to the US high yield market, adding: “ I continue to see opportunity in the US, particularly in the health care and paper and packaging sectors which should offer opportunities despite the slowdown in the US housing market.”