Brandywine sees opportunity in equity-like bonds

Fund manager Brandywine has said equity-like bonds and higher yielding sovereigns in developing markets offer good opportunities in 2014.

Regina Borromeo, manager of the Legg Mason Income Optimiser Fund, said she is becoming more stock-specific in high yield, favouring single B or higher rated credits in the UK, US, Europe and selected emerging markets. She commented: “We are also long in various local currency emerging market sovereigns such as Mexico, which is linked to the improving US economy and benefiting from fiscal flexibility and structural reforms.”

In terms of sector allocation, Borromeo said she preferred sectors with strong asset values and positive industry dynamics such as telecoms and media. “In Europe for example, there are plenty of lesser-known companies trading on 6.5% yields against the global average of less than 5.5%. Security selection will be key in high yield this year, whereas simply investing in the sector has previously been good enough.”