London-based Morley Fund Management, which manages £600 million in corporate and emerging market sovereign credits through the Norwich Higher Income Fund, is looking to add new issues to its portfolio. "This fund has had significant inflows from [Individual Savings Accounts] during this period. We are looking for new issues to take up some of the demand," says Roger Webb, fund manager. Webb would like to see more diverse issuance from investment-grade industrial and consumer names before adding in this sector. He is also keen on emerging market sovereign debt and hopes for positive capital returns for the year from that asset class. The fund is underweight high-yield with an allocation just under 30%. It devotes 10% to emerging market sovereign debt and 60% to investment-grade debt. The fund is benchmarked against the Merrill Lynch sterling high-yield index and the Merrill sterling investment-grade index. Webb is considering new issues on a case by case basis.
Over the past few weeks the fund has been reducing significantly its allocations to high-yield telcos Energis, Telewest and NTL. The fund has a yield target, and has been re-deploying the freed up cash to triple-B rated telcos--various issues from France Telecom, British Telecommunications and Deutsche Telekom. The firm has added to positions in Russia, the Philippines, Mexico, Brazil, Romania and Turkey.
Morley has also added cyclical names to the fund, because they could benefit from an economic recovery. It recently bought Hilton's 71/4% of '08, U.K. television company Carleton's 7 5/8% of '07 and 55/8% of '09 as well as media company Pearson's 7% of '14. It has also invested in auto components, which could be in better shape when the economy picks up--specifically Dana's 9% of '11 and Lear's 81/8 of '08.
