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A bond’s-eye view of the world

Rob Neithart
Portfolio manager/investment analyst
Based in:
Los Angeles
Investment experience:

ROB NEITHART: I think you would be surprised at how balanced our discussions are internally around European developments. In other words, we’re not just sitting around having an existential crisis about how terrible things are and just how doomed Europe is. Now, those views exist — there’s no question about it. The length of this crisis and what’s at stake can lead to some very negative outcomes that would be very destabilizing, but we’ve also been in this mode for years; this is a multiyear situation. And securities prices have moved dramatically to reflect a lot of this.

So the balance that we’re trying to achieve is understanding that things have not been resolved; there is no clarity on where we’re going. But a great deal of what we know is now accurately and fully reflected in prices and in spreads. And previously, our view was that it wasn’t; we didn’t feel that was the case. So we have a more balanced view that means we do have investments in quite a few assets in Europe that are fully exposed to the realities of what’s going on but where we feel the spreads and the valuations and the prices are appropriate and we have a very good chance of achieving a good return for our shareholders there. And in other places we don’t.

So, for example, we do have some exposure to bonds in Italy. We have no exposure to bonds in France. Italian yields have moved dramatically to reflect stresses and higher risk of default. France has very poor fundamentals, and it’s got a very challenging situation. It’s not clear that if things were to unravel, they would be sitting on the creditors’ side of the table; they might be sitting on the defaulters’ side of the table. Yields in France are extremely low and have not reflected stress. And you could go through other examples in other sectors.

So we’re not strictly playing defense. We do have a substantial investment in assets domiciled within Europe or connected to Europe in one way or the other. We do have confidence in some of the Nordic countries and companies that do business there, as well as government credits and corporate credits in some parts of Central and Eastern Europe.

So the discussion is dynamic. We acknowledge and we can express the risks very well. But I think we’re trying to invest with a much more evenhanded attitude, given valuations.

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