Baring High Yield Bond fund halves exposure to Europe

10 July 2012 | By Gary Jackson

The Baring High Yield Bond fund has cut its exposure to Europe by about half in light of strong performance and the region’s ongoing debt crisis.

The £541.7m portfolio went into 2012 with more than 20 per cent held in the European high yield market but this was reduced to less than 10 per cent in the second quarter, with the exposure fully hedged back to dollars.

An update by fund manager Ece Ugurtas says: “This position was a major source of positive returns in the first quarter as the market rallied following the announcement of the European Central Bank’s long-term refinancing operation, which strongly supported risk assets.

“As a result of this strong performance from the European high yield market … we decided to take some profits in the second quarter and significantly reduce our allocation to the region.”

Ugurtas also notes that the eurozone debt crisis looks unlikely to be resolved in the near term, leading her to be “highly selective” on where he invests in the region and focus instead on opportunities in the US.

Just 9.8% of the fund was invested in European high yield debt at the end of May, compared with a 58.4 per cent allocation to the US market. Emerging market high yield is another prominent allocation, accounting for 18.7 per cent of the portfolio.

“Looking ahead, we expect the uncertain political and economic backdrop in Europe to continue to drive a degree of volatility in the market,” Ugurtas adds, noting that the growth outlook and corporate profitability of the US and emerging markets tends to be more positive.

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