One of the strongest performing global corporate bond managers of the past three years has pledged to cut his current high levels of cash in order to tap 2013’s top credit opportunities.
‘I think there was an obvious area that hurt us last year and that was the high beta names we had in the portfolio. We are starting to buy a bit of the high beta names again but only in selective markets, such as the US.’
‘We are holding quite high levels of cash, so around 5-6%, that is pretty high for us, and we are looking for opportunities to put that to work,’ said Berg, who is also head of global fixed income and FX at DNB.
Berg said he is becoming more optimistic given the improving economic climate in the US, particularly in the housing market, along with a firmer position in the eurozone.
‘We are starting to be a bit more bullish and think that a bit more of the tail risk has been taken out by Draghi’s actions and also a recovery in the United States becoming more positive. Essentially we see more underlying value in the market,’ he said.
Another area Berg said he could potentially move into is subordinated debt, which he said was quite attractive at present. Although, Berg stressed, they would only move into what they perceived as ‘safe names’.
‘Even though we are not long subordinated debt it is looking very good because in that market I can see opportunity. We do have some financials, such as HSBC, as well as some Swedish banks and some Nordic banks,’ he said,
Berg also said he is likely to address the modified duration of the fund, which currently stands at 5.5 years, given investor concerns about interest rate risk. He said: ‘We may have to make some adjustments soon as many clients think our duration is a bit long.’
This adjustment is set to coincide with Berg adding slightly more interest rate risk to the strategy in the near future. At present, he said, the fund has limited interest rate risk compared to its index.
Berg is the second best performing global corporates manager on a three year basis, having returned 40.48% on the DNB Global Credit fund compared to a 24.59% rise in the fund’s index, the Citigroup WorldBIG Corporate TR.