Great rollercoaster ride for roving investors

New York: As casualties mount from worsening credit markets, compelling buying opportunities are arising in both the bond and stock markets for some of the biggest money managers.

"I love what's happening," said Jeffrey Gundlach, chief investment officer at TCW Group in Los Angeles, which manages assets worth $160 billion.

Growing fears that the US housing market's troubles, including rising defaults in the subprime mortgage sector, may be turning into a broader global credit crunch have sent some investors dumping everything from high-yield junk bonds to financial stocks.

Gundlach said he has booked his profits in government bonds in favour of Fannie Mae mortgage-backed securities.

"They've become really cheap, so we've taken up to a fairly big weighting," he said.

Subprime turmoil

The turmoil rooted in the US subprime mortgage market had many investors piling into Treasuries, and only Treasuries, over the last several weeks to a point that have made them expensive - and other securities attractive, Gundlach said.

Indeed, the yield on the benchmark 10-year Treasury note fell 29 basis points in July, the steepest yield drop since April 2005, when it fell 29.4 basis points.

By comparison, Fannie Mae mortgage-backed securities have seen their yields drop only three basis points. "You can see that mortgage-backeds are 30 basis points cheaper than they were a month ago relative to Treasuries," said Gundlach.

"Fannie mortgages have no credit risk - and people are worried about credit risk," he added.

There are other parts of the credit markets that look attractive for other money managers.

The debt of the brokers and banks "which have just been slaughtered in this market," are looking like attractive buys, said Steven Hung, a portfolio manager of the $13 billion Schwab YieldPlus Fund. High-quality, double-A-rated JPMorgan Chase 4.75 per cent notes due 2015 have widened to 109 basis points over comparable Treasuries, out from 74 basis points on June 28, according to MarketAxess.

"The markets are treating these well-capitalised companies as if these LBO fin-ancings which don't go through will result in them going out of business. That is simply not the case!" Hung added.

For their part, stock investors are sticking with companies whose earnings are mostly derived outside of the US.

One of the biggest fans of multinationals, Bob Doll, vice-chairman and chief investment officer of global equities at money manager BlackRock, said he has been keeping with his bias toward larger, broader geographically based companies.

"The global economy remains incredibly robust," Doll said.

He's a holder of US-based companies ExxonMobil and Cisco Systems, whose earnings are mostly generated overseas. Cisco produces nearly half of its earnings outside the US.

That said, the financial markets are facing a correction, but the correction is "more than half over in price and less than half over in time," Doll said.

Correction

Once the correction is over, his target on the Standard & Poor's 500 index still remains at 1,550 for the year, just under 100 points from its current level of 1,470.

In the last several days, Doll has been adding to existing stock positions that "have taken it on the chin," he said. "Even during this last week or so there may have been companies that have reported better-than-expected earnings - and the stocks are still down 5 per cent," Doll said.

"People are saying, 'Oh my goodness, the markets are going down, I'm selling,'" said Doll of the market sentiment.

But he added: "If you really liked a stock before the market's downturn, why wouldn't you like those stocks now even as their fundamentals improve?"