THE INVESTOR
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Matthew Stylianou
policy.There is not only structural change
but growth, and employment is growing
faster than in the UK.We also point to
a recent paper by Jean-Claude Juncker,
President of the European Commission,
and four other key policymakers, setting
out a 10-year road map for a single
European treasury, which makes it clear
that convergence is the aim.
Howhas recent volatility
impacted theportfolio? Is it an
opportunityoracauseforconcern?
EW:
No one likes volatility in their
portfolio, but if we are in the transition
from low to high interest rates then we
will see volatility, and investors need to
take a long-term view.
Therehas beena lot of recent
comment about poor liquidity
inbondmarkets .What does this
mean, why is it aproblemand
howareyouprotecting the fund?
GK:
Liquidity has been reducing because
of regulations which are particularly
affecting market makers and investment
banks, and it will not return to pre-crisis
levels.We are investing in more liquid
areas such as peripheral government
bonds, where there is still liquidity, and
focusing on short-dated bonds. Because
these have an early redemption date, they
alleviate the impact of a lack of liquidity
– with short credit durations there are
always people looking to buy.
INTERVIEW
interest rate exposure as we want.We also
keep a close eye on the credit duration
of the portfolio, as in times of market
uncertainty, the shorter the maturity
date, the less volatility there will be in
bond prices.
What are the factors thatmake
Europeanhigh-yieldbonds
attractive right now?
GK:
We run a high-conviction fund and
we do not diversify the portfolio for the
sake of spreading risk.We will generally
not invest in a bond unless we have met
the management of the company that has
issued it.While interest rate rises are
expected, quantitative easing in Europe
only started early in 2015 and will
continue at least until the end of this
year, and that has important implications
for high yield in Europe.The cheaper
financing means it is easier for high-yield
companies to finance investment
opportunities, roll over their debt and
put long-term financing in place.That is
one of the main reasons we favour
European high yield.We also like
subordinated bank debt.
EoinWalsh:
Quantitative easing is
also devaluing the euro against the
dollar and the pound, which is making
European companies more competitive.
Europe is also being helped by the
reduction in commodity prices, as
Europe is a net commodity importer.
What areyour views on the
political riskacrossEuropewhich
is affecting countries likeGreece
particularly?Does this shape
your thinkingonwhere to invest?
EW:
I am not certain that the Greece
issue is solved as it is difficult to see
how it can keep up its debt payments
in the long term. Compared to last year,
though, the risk of contagion is lower.
GK:
The recovery in the peripheral
economies is attractive compared to core
euro bond markets.We particularly like
Spain because of its macroeconomic
We like Spain
because of its
macroeconomic
policy
GARY KIRK
