Aberdeen Asset Management, the Scotland-based investment group whose US office and stock- and bond-picking group is based in Center City, is the latest investment company to put together a junk bond fund for investors who hope high-yield returns, lately in the high-single-digits, will remain more attractive than stock profits or short-term rates.
Keith Bachman, a veteran Philadelphia fund manager who joined Aberdeen three years ago, is rolling out a new US version of Aberdeen's European-registered, $180 million-asset Global II U.S. Dollar High-Yield Bond Fund, for 401-k plan retirement investors, among others. The new Aberdeen U.S. High Yield Bond Fund, seeded with $10 million, is Bachman's attempt to limit risks and boost profits from sub-investment-grade bonds.
"We think growth in this sector will be extraordinary," Bachman, a veteran Philadelphia bond researcher and buyer, told me in Aberdeen's Mellon Center office.
Aren't junk bonds risky for retirement investors? "We're very concerned with downside control," he told me. The $1 trillion-plus high-yield marketplace includes a lot of issues Aberdeen High Yield won't buy. It will buy limited portfolios of busted convertibles, investment-grade securities, European and Asian high-yield, and short-sold American issues, and some private placement loans.
That said, here's examples of what the fund's European cognate has bought:
- Chesapeake Energy, Hercules Offshore, and other energy bonds that were out of favor immediately following the 2008 credit crisis. "The ratign agencies are stilll acting as if they're using $40 a barrel oil as the midcycle price. We use $80," he told me. Plus a lot of small energy companies that won't survive as independent oil or gas plays, but whose assets make them desirable for buyers, who will pay down their high-rate debt. "So there are a lot of energy securities that are underrated, in our view."
- Off-brand wireless companies. "Leap, Clearwire, all these telecom plays, they own 4-G spectrum that will be critical for Deutsche Telecom, AT&T, and CenturyTel as buyers."
- Companies whose assets (dead) may be worth more than their businesses (alive.) "Secular pressure is a big part of high yield," said Bachman. "Take Eastman Kodak. We bought credit-default swaps" shorting the company's debt as profits failed. Betting against Wall Street, Bachman collected when Kodak defaulted.
This is today's stormy-weather investing, not yesterday's sunny Stocks-for-the-Long-Run model. "We do a lot of research, and it often presents an ugly picture," says Bachman. "We can use that."