“High yield has been under pressure since mid-2014,” Valensise said. “As the price of oil declined, high yield bonds were hit by the deteriorating creditworthiness of energy issuers and other sectors have followed. The most negative projections are now factored in and a yield-to-maturity hovering around 8-10% is attractive. It allows for a certain margin of error in the event of a further deterioration in credit conditions. We are convinced investors with a time horizon of 18 months will be well rewarded.”
In terms of more defensive positions, Barings downgraded gold to neutral and as a consequence of the uncertainty over Brexit has downgraded sterling from neutral to not preferred.
“We must consider the upcoming Brexit referendum given that its outcome will impact not only the UK but the entire European Union,” Valensise added. “We believe that the repercussions of a vote in favour of Brexit would be material for markets; we are therefore holding 25% in foreign currencies, while underweighting sterling.”
