February 2002
The stressful world of the credit fund manager
Investing in credit need not be rocket science. But it definitely requires something more than a dartboard approach. At a time when funds are pouring into Europe's fast-growing credit markets - and when returns are high but so are volatility and the frequency of credit shocks - investors are finding that success in the credit arena boils down to three things: diversification, specialization and, above all, intensive and constant research.
These are heady times for European credit fund managers:
hairy at times, and sometimes plain scary, but undeniably exciting.
The supply of non-government bonds is growing fast - offering an
ever-widening array of names, sectors, ratings, issue types and
maturities. Demand is growing even faster, with investors seeking
new asset classes and chasing yield after two years of dismal
equity market performance and low returns on government bonds. And
all the while the frequency and severity of credit shocks are
rising too - creating almost daily opportunities for bondholders to
get burnt in what are still relatively new markets.
"Last year was a very rewarding one for credit, but it was also a
very tough year," says Paul Lavelle, fund manager at US investment
house Fidelity's London office. "If you avoided the land mines, you
did real well. If you were caught out, you were badly hurt. The
message is clear: don't play with...
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