The onset of a global economic recovery will drive cyclical credit opportunities and Vontobel’s Citywire AAA-rated manager Mondher Bettaieb is positioning to take advantage.
Speaking to Citywire Global, the Zurich-based manager of the €412 million Vontobel Corporate Mid Yield fund said he has focused his efforts on sectors he thinks will outperform the rest of the market this year.
‘We tend to favour higher beta positions in our fund. For example, we are seeking areas where we think the valuation is not reflective of opportunity and we are therefore looking at the auto sector,’ he said.
‘We are being very picky but believe the auto market has bottomed and we are expecting a rebound. This has led us to hold an overweight which is four percentage points over the benchmark.’
In addition, Bettaieb is also looking to capitalise on the widespread efforts to revitalise and restructure financial institutions through measures such as Basel III.
‘There is a very strong trend that as the eurozone enters its normalisation process, we will see banks beginning to go through deleveraging and reducing their risk assets, while their capital positions will also improve.’
‘We also like tier one bonds in banks and we are quite happy with the fundamental strength of the banking sector as we see it, so we have taken an overweight position here of about 6%, while also having a 3% overweight to low tier twos.’
In a similar vein, Bettaieb is looking at other areas of the financials market which will benefit from improved balance sheets and also a more constructive investor outlook. This has led him to increase his weighting to insurance companies.
‘Another high beta area we like is the insurance sector, which is also going through a deleveraging process. The bigger insurance companies are better equipped than many of the smaller ones, when it comes to deleveraging, and so look more attractive to us. We have an 8% overweight here.’
While Europe, which is the main hunting ground for Bettaieb’s top down fund, is moving into recovery mode, there are still challenges ahead, he said.
Therefore, Bettaieb said, echoing BlackRock bond manager Michael Krautzberger, there is a high chance the ECB will instigate some form of quantitative easing in order to ensure the region’s recovery continues.
‘There is an issue with disinflation and I would be surprised if they started providing additional liquidity to Europe to stop deflation taking place.’
‘Their balance sheets are looking pretty good at the moment and a lot of those that took money from the LTRO programme have returned it, so there is quite a lot of room to provide liquidity if needed.’
‘We wouldn’t be surprised if that led to another round of LTRO, it entirely depends on whether they think it can aid inflation, so we are not ruling out the outright purchase of government bonds if the situation so needs it.’
The Vontobel Fund – EUR Corporate Bond Mid Yield B fund has returned 23.3% over the three years to the end of December 2013. This compares to a rise of 18.15% by its Citywire benchmark, Markit iBoxx Euro Corporates TR.