The current investment environment is dictating a sizeable allocation to credit in our balanced portfolios, the chief investment officer of Bordier & Cie Singapore has said.
‘We find that the bulk of our risk today is in credit. In an uncertain world, I don’t want to be in an asset that’s driven by sentiment. I want to be in an asset driven by contractual obligation,’ Bryan Goh told Citywire Asia.
‘We are in high yield and leveraged loans,’ he said, adding that he is also looking for other opportunities in senior bank debt.
‘We might invest in closed-end leveraged loan funds when they trade at enough of a discount. We also invest in mutual funds that trade leveraged loans.
‘We even look at collateralised loan obligations – which is a structured credit, pre-packaged form of leveraged loans.
‘It all sounds really scary but we are holding a contractual obligation which is senior to bonds and has collateral. Most of these assets in the market are first lien loans.’
The issuers are all the high yield names, the Singapore-based investment head added.
'Fortunately, the representation of energy companies in loans is a lot less than in high yield bonds. They constitute about 16%-17% of the bond market but just 4% of loan markets.’
Given the current volatility, Goh is wary of equities, giving them an underweight on a dollar basis. For a balanced risk profile, he recommends a 30-70 split between equities and bonds.
‘That way you would be 50-50 in terms of risk because equities carry higher risk.’
Goh’s interest in credit underlines his investment strategy.
‘What we are investing in is value and mispricing,’ he said.
‘So if you’ve got a slow growth environment but there’s a security that’s pricing in even slower growth than that, that’s an opportunity.
‘For example, the credit spreads of high yield and investment grade bonds in February signalled that we that we were already in a recession in the US, which we weren’t.
‘So on that basis, it made credit an attractive proposition because it was mispriced,’ said Goh.