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Mirabaud’s Lake: US credit standing tall as govvies struggle

Mirabaud’s Lake: US credit standing tall as govvies struggle

Credit can still serve an important part of investors' portfolios but the European market is over-valued, that is according to Mirabaud’s Andrew Lake.

Citywire + rated Lake, who runs several funds at Mirabaud, including the Mirabaud US Short Term Credit fund, said investor concerns over misfiring areas of the bond market are understandable but not all bonds should be overlooked.

'The one area people obviously have concerns with is government bonds, which I think is more than justified. Within fixed income, one area you should be looking at is corporate credit, predominately in the US at the moment.

'As an investor, you have to differentiate between the types of credit you are looking for and where. Europe is something different, it’s over-valued. While it’s slightly off-base for this fund, we are not really looking at the region in our global portfolios either.'

These thoughts echo that of his co-manager Fatima Luis, who investors should be avoiding European bonds and highlighted long duration bonds as risky.

Lake currently has a 2.7% weight in US telecom operator Sprint. Lake classes the company as a ‘volatile credit’ but he said the company’s credit story is actually improving.

'We have owned Sprint since the inception of the fund and, traditionally, these telecom companies can use a lot of debt to fund their expansion,' he said.

'Sprint is a company which has not been operationally challenged, but it was a company which definitely had some questions around what it should be doing.'
Positive on energy

Elsewhere, Lake is currently focusing on energy, where he currently holds 15.9% of the portfolio. Lake has 2.6% allocated to Gaz Capital, a subsidiary of Russian giant Gazprom.

'Energy is a sector in the short term that we are more focused on across all of the funds, as the technical momentum is strong.

'There is also a good degree of positivity around the Opec cuts, particularly for the US producers. That’s one area we are continuing to focus on which is a source of alpha for us.'

Lake also has 21.8% allocated to consumer cyclicals and said there are select stories in the retail space the team is currently following.

‘We like L Brands, which is the Victoria Secret’s holding company. We also like gaming so we have some slight exposure to MGM (Metro Goldwyn Mayer).

'Despite the negative noise and headlines around autos, we also have some exposure to short-dated autos. Generally, the shorter bonds we own have not been impacted by this, we are picking decent stories where the path to maturity is solid, so really the price volatility is very low.'

The Mirabaud US Short Term Credit fund returned 3.74% in US dollar terms over the one year to the end of January 2017. This compares with a 2.42% rise, by its Citywire-assigned default benchmark, the Bloomberg Barclays 1-5 Y Credit TR, over the same time period.

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