Gaiser points out that the recent high yield bond sell-off has followed a typical pattern where investors start selling lower-grade debt securities rather than higher-grade ones.
“Now this has now turned into a rather generalized blind sale that affects all industries and rating classes in the high yield segment,” writes Gaiser.
Sectors which are generally fairly stable, such as leisure parks, are currently experiencing a structural shock. The time it will take to recover is difficult to predict.
In this environment, Gaiser, who is the portfolio manager of the Threadneedle (Lux) European High Yield Bond Fund, is increasingly betting on cash.
“One of our recent activities has been to increase the share of cash by selling short-term bonds which have performed well and are starting to be expensive.”
The portfolio manager has taken precautions against the need for short-term liquidity. “We have also deleted certain titles in the fields of transport, energy and leisure”.
The portfolio has been underweight in cyclical sectors such as autos, transportation and commodities since the start of the year.
At the same time, stocks in healthcare, technology, media and financial service providers are overweighted.
The key, according to Gaiser, is to position the portfolio so that it is less involved in market movements.
Gaiser also sees something positive in the current environment. “Some industries and companies that were once expensive because of their low risk premiums are now starting to look more attractive because valuations have become more attractive.”
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