Global bond manager Iain Stealey has become the latest JPM manager to increase exposure to high yield bonds to capitalise on US economic growth.
Speaking to Citywire Global, Citywire A-rated Stealey, who co-runs the JPM Global Bond Opportunities fund, increased his allocation by 3% over the past three months.
‘We upped our high yield weighting in the US following the oil price fall as it created a series of interesting opportunities,’ he said. 'Energy represents just the 15% of the high yield market in the US, which will significantly benefit from the oil price drop.'
Stealey said the oil price fall has done what the central bank monetary easing could never have achieved. ‘It put money in the pockets of Americans. There is now more cash at the disposal of the US consumer.’
Conversely, Stealey slightly trimmed his European high yield bond positions but he’s still positive on the sector. ‘The yield is not so high, at only 4%, but still interesting. Corporate borrowers have a supportive central banks, an improving economy and a boost from the weakening currency and falling oil prices.’
‘This is not a bad trade when the yield on equivalent duration German government bonds is in negative territory,’ he added.
Long US IG and European peripherals
Stealey has also maintained a long position in US investment grade bonds as he said spreads are widening in North America while tightening in Europe.
‘US investment grade bonds are cheaper than European ones. The supply that will come to the market in the US this year might be less than what people are expecting, which is a very positive aspect for us,’ he said.
Elsewhere, Stealey said he favours European peripherals and added some 30-year bonds on the back of ECB President Mario Draghi announcing stimulus measures in January.
Over past year to the end of January 2015, the JPM Global Bond Opportunities fund returned 5.5%, while its Citywire benchmark, the Citi WGBI TR USD index, fell 2.05%.