NEW YORK (Reuters) - Kathleen Gaffney, co-director of investment-grade fixed income at $343 billion investment firm Eaton Vance, said on Wednesday that she was looking to buy high-yield bonds in the cyclical sector after a potential selloff.
Gaffney said high-yield bonds in sectors such as materials and industrials would likely benefit from stronger growth under U.S. President-elect Donald Trump’s administration, but that she was awaiting a repricing of those bonds before buying them.
“Right now, I would say high-yield is at risk to an unwind from technicals and flows coming out, with a repricing,” Gaffney said at the Reuters Global Investment Outlook Summit in New York.
“But if what we’re seeing right now with fiscal stimulus is more supportive of growth, selectively I’d lean toward looking at high-yield credits that would benefit from stronger growth,” she added. Trump emphasized infrastructure spending and other fiscal stimulus measures in his acceptance speech on Nov. 9.
Gaffney, whose $622 million Eaton Vance Multisector Income Fund (EVBAX.O) is in the top percentile of its Morningstar category this year with a year-to-date return of 17 percent, said she was holding 11 percent in cash and awaiting greater volatility before jumping into high-yield bonds.
“With credit markets in particular being overvalued, it’s one the reasons why I’m holding on to that cash and not rushing in,” she said.
U.S. high-yield corporate bonds have rallied 14 percent so far this year, putting them on track for their best annual performance in four years, Bloomberg Barclays index data show. Low-to-negative yields on government bonds globally have stoked investor appetite for higher-yielding bonds.
Gaffney said she remained bullish on several high-yield oil exploration and production companies such as Chesapeake Energy Corp CHK.N., Noble Energy Inc. (NBL.N), and Continental Resources (CLR.N), and said offshore drillers Rowan Companies PLC (RDC.N) and Ensco PLC (ESV.N) offered “tremendous upside potential.”
She said that, while she did not see oil prices rising back to $100 a barrel, she expected them to trade within a tight range of between $45-$60 a barrel “for quite some time.” U.S. crude, which plunged 76 percent from about $108 a barrel in June 2014 to a nearly 13-year low of $26.05 in early February amid a crude supply glut, has since rebounded to last trade at $45.54.
Gaffney said U.S. Treasuries would likely produce negative returns in an environment of higher growth and inflation.
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Reporting by Sam Forgione; Editing by Lisa Von Ahn, Bernard Orr