NEW YORK (Reuters) - Low default rates and slow U.S. growth mean that high-yield bonds remain an attractive investment area, Calvert Investment Management bond chief Cathy Roy said on Wednesday.
“Within the sector you can find some good gems,” said Roy, Calvert’s chief investment officer for fixed income, speaking at the Reuters Global Investment Outlook Summit in New York.
Heavy research efforts can screen out the riskiest high yield bonds, she said, noting, “Our biggest challenge as fixed-income investors now is there’s no room for error.”
Roy oversees about $5 billion in products like the $1.7 billion Calvert Short Duration Income Fund, plus the new Calvert Green Bond Fund that the firm launched last year.
In addition to high-yield debt, Calvert plans to stay overweight in other areas like asset-backed securities and bank debt. Many new asset-backed security deals still offer attractive yields compared to similar credits, Roy said.
“You’re taking more of a risk” in analyzing the deal structures, she said, including deciding which tranche to buy.
But those assets could help diversify portfolios and boost yields as the Federal Reserve stays on hold on monetary policy perhaps until 2016.
On banks, Roy said institutions have cleaned up their balance sheets. She said they could benefit if Republican control of the U.S. Senate leads to the relaxation of some of the rules passed after the financial crisis.
While Roy said it is too soon to know what specific changes might be passed, “I can’t imagine it will be negative. That reinforced our overweight.”
She also said the firm has taken down its overweight position on energy holdings, as slowing global growth makes it possible that oil prices could fall further.
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Reporting by Ross Kerber and Luciana Lopez in New York; Editing by Leslie Adler