Wednesday, April 1, 2015

Aberdeen's new junk-bond fund

Keith Bachman makes money from risky US debt

Aberdeen's new junk-bond fund

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."

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at or 215 854 5194.

Joseph N. DiStefano
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