According to Ian Edmonds, manager of the Legg Mason Western Asset Global Multi Strategy Bond Fund, falling default rates, increased M&A activity and surging supply should drive strong returns in the high yield corporate bond market in 2011.<\/p>\n
\nFalling default rates, increased M&A activity and surging supply should drive a 7-8% return in the high yield corporate bond market in 2011, says Ian Edmonds, manager of the $1,897.08m* Legg Mason Western Asset Global Multi Strategy Bond Fund.<\/p>\n
Edmonds, whose fund has returned 11.56% over the past year**, says that, while he has recently derisked the portfolio and taken some profits in high yield after strong year-to-date performance, he
\nbelieves the backdrop for the asset class remains supportive both in the near and medium term.<\/p>\n
\u201cThe default rate remains low and merger and acquisition activity is accelerating, which should benefit high-yield bondholders as investment-grade companies target high-yield corporations,\u201d he says. \u201cThe other positive is that supply has surged this year. In the US market supply is running at an annualized basis of $365bn, far higher than the $262bn seen in 2010. The story is the same in Europe. Much of this issuance has been for refinancing, which is a positive for the market and allays fears about the rising number of maturities coming up in the high yield and loan markets in the coming years.\u201d<\/p>\n
A key threat to this outcome for the high yield market, says Edmonds, is if the global economy slows and credit quality deteriorates before the sharp increase in maturities in 2013 and 2014. \u201cThat would be a big
\nrisk and it is something we are keeping a close eye on,\u201d he says. In the immediate term, Edmonds remains selective in the fund\u2019s high yield exposure, focusing on utilities and other defensive sectors. <\/p>\n
Across the portfolio, Edmonds has trimmed its allocation to investment grade bonds, where the Western credit team does not see enough value, and emerging markets, where the threat of further volatility has
\nled to a reduction of some of the fund\u2019s dollar-denominated sovereign and corporate debt. \u201cWe have been gradually rotating into local currency emerging market debt where we are seeing a combination of
\nhigher interest rates, as central banks begin to tighten, and gradual currency strength.\u201d Edmonds has also reduced duration by half a year to four years.<\/p>\n
\u201cThis has resulted in us building up some cash, although this is purely opportunistic and tactical to leave us in a position to take advantage of any market volatility in the future,\u201d he says.<\/p>\n
The key risk for the fund, says Edmonds, is that growth does not meet expectations or that global economies fall back into recession, although this is not the team\u2019s base case scenario. The other big
\nrisk, in his view, comes from peripheral Europe where he expects continued volatility.<\/p>\n
The fund was launched in August 2002, its objective is to maximise total returns through income and capital appreciation by diversifying across a range of fixed income securities and currencies.<\/p>\n","protected":false},"excerpt":{"rendered":"
According to Ian Edmonds, manager of the Legg Mason Western Asset Global Multi Strategy Bond Fund, falling default rates, increased M&A activity and surging supply should drive strong returns in the high yield corporate bond market in 2011.<\/p>\n","protected":false},"author":20,"featured_media":19346,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1483],"tags":[1655,1856,1859,1651,2054],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19348"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=19348"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19348\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/19346"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=19348"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=19348"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=19348"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}