Janus Henderson: Bonds without borders
In 2018 Tom Ross, Co-Manager of the Global High Yield Bond Strategy, expects to see a continuation of cross-border issuance and for smaller issues to offer some of the best opportunities in the market.
What lessons have you learned from 2017?
The lesson I have learned from 2017 is that it is worthwhile investing time in relationships. The merger of Janus Capital and Henderson Global Investors meant changes to the management of the bond team in the US. We realised that for the integration to be successful, we had one to two months to get it right. Global high yield is the area in which this was most pressing because we have always had two portfolio managers on both sides of the Atlantic. Seth Meyer, who joined as Co-Manager from Janus in Denver in the US, had to pick up the co-management and understanding of this portfolio very quickly. It helped that we were able to spend some time together getting to know one another’s investment style prior to the merger and have since been able to roadshow together in Europe to showcase our credentials.
What are the key themes likely to shape the markets in which you invest in 2018 and how is this likely to impact portfolio positioning?
We expect to see an increase in idiosyncratic risk in 2018. We have already noticed this in the second half of 2017, starting with the volatility in the telecoms sector in August, as merger and acquisition rumours and stories were rife. Towards the end of 2017, we have seen pharmaceutical company Teva downgraded to high yield by Fitch, Petroleos de Venezuela (PDVSA) commence restructuring proceedings, and volatility re-emerge in the technology, media and telecoms sectors. The wider spread dispersion that may result from this volatility should create more opportunities for a selective approach.
US issuers in the European high yield bond market have grown from just over 6% in early 2016 to 12% in late 2017. The European market offers a more cost-effective means of financing, given the lower yields in the European market compared with the US market, so we would expect US issuers to continue to cross the Atlantic in 2018.