Pioneer EMD manager on top HY country bets and stocks

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Pioneer Investments’ Colm D’Rosario has increased his exposure to Mexican high yield bonds in order to capitalize on the country's growth opportunities.

The high yield manager has upped his holdings by 4% in the Pioneer Funds Emerging Markets Corporate High Yield Bond fund, which he co-runs with Yerlan Syzdykov, since the beginning of the year. The fund is now 9% invested in Mexico, according to the latest factsheet.

D’Rosario particularly favours Mexico's energy sector and owns companies like Fermaca and Grupo R.

‘The Mexican government is opening up the sector and scaling down the influence of the big, state-owned company Pemex. This will help domestic players and attract foreign capital,’ he said.

From a global perspective, the manager thinks that the energy sector will profit from a relatively stable oil price.

‘We are quite constructive on oil price as demand won’t be strongly affected by geopolitical events in the near future,’ he said.

He added that he also likes utilities companies because they can generate a solid cash flow and will benefit from an uptick in the cycle.

Overweight China and Russia

Elsewhere in the fund, D’Rosario boasts overweight positions in China (8.8% of the portfolio) and Russia (9.4%).

According to the manager, the Chinese high yield corporate market is polarised between the property sector and all the other issuers.

‘We have an exposure to real estate companies but we are moving to the short end of the curve to minimize volatility. There are still good opportunities there, and valuations have been rising,’ he said.

D’Rosario prefers industrial plays, as he said that the sector guarantees a good, defensive way to play China.

‘On the industrial side, we like Textex, a textile business which has been on a good growth path and boasts a solid balance sheet,’ he added.

Speaking about Russia, the manager began to take advantage of the market's cheap valuations a few months ago when volatility was at its peak. Currently, D’Rosario prefers to maintain an exposure to less cyclical sectors, like telecoms and industrials.

‘We are comfortable with the default risk and try to actively manage the volatility risks of the country. But we also maintain a defensive profile as political pressure has risen more than expected.’

On the opposite spectrum, the manager is underweight South Africa and Kazakhstan, as he said these countries’ fundamentals are not solid enough.

Longer-dated issuances

D’Rosario believes that we will see longer-dated issuance in the high yield corporate sector in the immediate future.

‘Companies will try to get refinancing for a longer period, with the option retained by the issuer to redeem the bond before the legal maturity,’ he said.

The whole emerging market corporate HY area, according to him, is attractive also because although leverage has risen, the net levels are still below that of the US.