Baring’s Ugurtas: why I haven’t given up on European HY

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High yield bond manager Ece Ugurtas is weighing opportunities in European high yield despite a spate of challenges and more than halving her position in the market over the past year.

Ugurtas, who runs the $1.3 billion Barings High Yield Bond fund, said she cut her European exposure from 22% in the first part of 2012 to around 10% at the start of the second quarter.

Speaking to Citywire Global, Ugurtas said, while she would be somewhat reluctant to act, she is eying up potential opportunities to increase this allocation.

‘We currently sit at 14.4% of the fund in Europe but with all the challenges there, we could see an opportunity to further add to this on weakness,’ she said.

Ugurtas said, while she remains cautious, the combined quantitative easing measures announced by global central banks in September had led her to re-evaluate her holdings in Europe.

The former Citywire A-rated manager said: ‘We had a very large bet in Europe at the start of 2012 and we cut that after the first quarter, although we started buying back when we saw the action by the central banks, as Europe did start to do very well.’

‘There are still many potential concerns, of course, such as Spain and how they will approach OMT, how OMT funding as a whole will work, and then we have elections in Germany and Italy.’

EM exposure

The move away from Europe allowed Ugurtas to further increase her exposure to the emerging markets, which now stands at 19.3% of the fund.

She said this shift is driven by a host of factors, from an increase in issuance among emerging market names to sounder fundamentals.

‘The key measure to use is fundamentals and valuations and, from our perspective, both of those are more attractive in the emerging markets, even in comparison to the United States,’ she said.

‘We only hold 50-55% in the United States, while many of our peers would hold 80% or more. This is not because we are averse to the US market but because we think there is opportunity elsewhere and more attractive returns in the emerging markets.’

Elsewhere in the portfolio, Ugurtas said she had also trimmed her cash holdings in order to access more opportunities in the emerging markets and Asia. This has seen her cut cash holdings from 5.7% at the end of November to 2.6% today.

The Barings High Yield Bond fund returned 36.1% in euro terms over the three years to the end of January 2013. This compares to its Citywire benchmark, the BofA Merrill Lynch Global High Yield BB-B Rated index, which rose 42.6% over the same period.

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