grandfathering ' illusions are high-yield investors , Hermes warns
Citywire A- rated Fraser Lundie , co-head of credit at Hermes Fund Managers , argues that traditional approaches to high-yield bonds outdated and inflict losses danger.
The Barclays Global High Yield Index gained a third in the past three years, more than the yields on Hermes new constance baggovernment bonds and investment grade .
"Too many people have a vested interest in an asset class that has increased by 30 % ," claimed Lundie (photo). He described their attitude: " If it is not broke , do not fix it . "
However, Lundie seen lurking dangers , the roadmap that are not replicated by other market participants threaten .
The reason , he says, is that the way the historical analysis of high-yield paper - with respect to the distribution, it offered more than gilts , Treasuries and Bunds - was superseded by the flood of liquidity central banks Press State returns.
" On the basis of a pure propagation will tell you that there is no problem ," but spread is only part of the history of evaluation Lundie observed. " .
Instead, he focused on the performance and price : You are currently at historically low levels and heights , respectively. "It is clear that there is a disconnect between the valuation and fundamentals ," Lundie said. "We are in a bubble level that would never be picked up on a broadcast monitor .
The manager also recognized a familiar source of anxiety about the high-yield space : liquidity. Hermes passport holderAlthough the size of the market value is more than double the previous 10 -year high , a quarter of the shares have peaked.
" This has been talked about , because fund managers want to complain about it," Lundie said. But the convergence of a significant increase in the size of the market and a significant reduction in dealer inventories could lead to a perfect storm . "
Within their own portfolio Lundie this environment addressed in three ways . First, he avoided problems with high-performance options that declare three quarters of its addressable universe. "They have a ceiling where the returns can go set ," Hermes 30cm bag he said.