BWD Rensburg is to reduce the number of stocks in its High Yield Bond fund and is also looking to bo...
BWD Rensburg is to reduce the number of stocks in its High Yield Bond fund and is also looking to boost the yield on the portfolio.
Gerard Lane, who manages the unit trust, will cut the number of stocks it holds to around 60 from 70 over the next six months.
The move is designed to give him more time to spend on individual holdings in the portfolio.
At the same time he wants to increase the yield from 5.8% to 6% by boosting the weighting of A rated stock from 40% to 60% and cutting the AA weighting from 60% to 40%.
Among the issues he favours are tier-one capital from HSBC, which is yielding 7.9% and Daily Mail General Trust corporate bonds, which are on a yield of 7.39%. He also is positive on BAA paper on a yield of 6.8%.
He is keen on these companies on the back of their strong cashflow and believes they will benefit from long term economic growth.
Lane is underweight paper from cable companies such as Energis and Telewest and said there is a danger of network duplication in this industry.
He added: "Back in the 19th century, Liverpool had three railway lines from London. It was a big booming city but it could not sustain three lines so two went bust and one survived.
"The cable operators are each building their own networks and there is duplication and I think we could end up with a similar situation as with the railways between Liverpool and London.
"There is a risk as a bondholder that one could be exposed to the debt of the wrong cable company and the asset would become worthless.
"I believe that taking the equity risk in this area is preferable to the bond risk as there is the potential for equity returns.
"There would tend to be lower returns on the bonds but there is also a large potential downside."
Lane is not keen on the gilt market, which he believes is expensive relative to corporate bonds, with institutional demand continuing to be high and issuance low.
BWD High Yield Bond currently has a zero weighting in the gilt market.
Lane added that the £22bn the Government has raised from its auction of mobile phone licences to firms including Vodafone AirTouch and Orange is also likely to restrict the supply of gilts, with the Government planning a buyback programme.
BWD High Yield Bond is 30 out of 61 funds over three years in the UK General Bonds sector on an offer to bid basis on growth of 21.5%.
The £9.8m fund is 27 out of 84 funds over one year on an offer to bid on a fall of 4.3%. Over three months the fund is 72 out of 95 on a bid to bid basis on growth of 1.4%.
The average fund in the sector saw growth of 21.7% over three years.
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