They are too steep compared to the risk within investment grade,” Daniel Pedersen, chief investment officer at Asgard Credit Fund, said in by phone on Monday. “So you get well compensated for going out the curve in the investment grade market.”
The 130 million-euro ($140 million) fund invests globally, but mainly in U.S. and European credits. It holds about 200-300 liquid corporate bonds in the lower end of investment grade and the higher end of high yield. In general, U.S. dollar BBB bonds corporate spread curves are right now relatively steep, according to Pedersen.
Recently, the fund bought the Kroger 2029 bond at around +200 basis points. It also holds Bacardi 2028, Hewlett Packard 2035 and
Xerox 2039. “There are some good names in retail,” he said. “It’s important to stay in the high quality names.” Pedersen said a recession is “most likely still at least a few years away.”
“We think growth rates are going to stay decent the next couple of years,” he said. “The U.S. economy isn’t yet at full employment even though that’s what you read in the headlines.” The fund, which has a leverage of about 4 times, takes short positions by buying credit default swaps. The fund currently avoids sectors with systemic risk, such as financials and basic materials.
The fund is shorting Unicredit SpA, Intesa Sanpaolo SpA, ArcelorMittal and Glencore Plc. “We are not very concerned short term about these credits, they have after all improved their balance sheets, but we think in a selloff or in a serious capital market crisis these names are good examples of some credits that will underperform,” he said.
Pedersen said he’s more concerned about, for example, Tesla Inc., Nabors Industries Ltd and similar credits with more liquidity concerns, but where the problems are to some extent reflected in current credit spread curves. “If Tesla and Nabors for example tightens from around 500-700 basis points currently to 300-400 basis points those are names we would most likely start to get short in,” he said.