Hong Kong: One of the world’s best-performing junk bond funds is dealing with the surging costs of debt globally by digging deeper in the bargain bin.
As the world’s riskiest notes soar to their most expensive levels in three years, Hong Kong-based Value Partners Group Ltd. is looking for value in securities others have avoided. Gordon Ip, who manages the $2.4 billion (Dh8.8 billion) Value Partners Greater China High-Yield Income Fund, has overseen returns of 4.9 per cent this year, beating 98 per cent of peers targeting junk debt globally.
“Garbage also has value if you can price it right,” said Ip, head of fixed income at the firm. “If you can buy something for 5 cents and you think it’s worth 15 cents, then you’ve gotten it for one-third of its value.”
US President Donald Trump’s surprise election victory spurred a rally in risk assets from stocks to commodities, fuelled by hopes that global growth will pick up. The average premium on high-yield securities globally has slid 349 basis points in the last year to a three-year low of 385, according to a Bloomberg Barclays index.
Ip said that the firm is looking at starting an alternative credit strategy fund to generate better risk-adjusted returns. The market rally has also prompted him to buy riskier, less well-covered names.
At the end of January, 62 per cent of his fund was invested in single B-rated credits and below, compared with 55 per cent and 50 per cent in January 2015 and 2014 respectively. In his philosophy, there are no bad bonds, just bad prices.
“We just feel that you have to do something your competitor is not doing, in order to generate alpha,” said Ip, who has more than two decades of experience in fixed income. “You’re doing things that fewer people do, take the road less travelled, and then take your punt.”
