Over the past month, the Bank of America Merrill Lynch Global US High Yield Bond Index has fallen by 3.6%, while the energy component of the index has fallen by 11.4%, the firm said.
The drop, driven by oversupply (and worsened by volatility from end-of-year low trading volumes), prompted Baring to review its energy holdings in the Baring High Yield Bond Fund. Although the fund does have exposure in its top ten holdings to oil and related companies, the firm decided to stay the course.
“[We] remain comfortable with the liquidity profile of the companies whose bonds we hold. Likewise, we believe the level of exposure to the energy sector remains appropriate at 14.5% at the close of November,” wrote Ece Ugurtas, the fund’s investment manager, in a recent note to clients.
“[M]any of the oil companies have hedged their exposure to the price changes for 2015 to safeguard revenue streams. This suggests to us that any significant fallout from the decline in oil prices at a company level would most likely occur in 2016, rather than in the nearer term.”
Ugurtas added that the fund has little interest in European high yield debt and has hedged euro exposure to protect against any weakness in the euro against the US dollar.
“After a strong performance from European high yield debt, we find it difficult to see much value in this area of the market, and prefer the US high yield market, as well as emerging high yield, where we see particular investment potential.”
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Near the end of a relatively strong year, the fund and its benchmark fell with oil prices.
Data to December 16
Source: FE Aanlytics
