Milburn tops up Italian exposure

Kames Capital high yield bond manager Phil Milburn has topped up his Italian credit exposure in his fund, as he grows more positive on the eurozone crisis.

Milburn, who runs the £1.3bn Kames High Yield Bond fund, says the firm was running with a high cash weighting of about 10 per cent going into the July European Central Bank meeting.

President Mario Draghi delivered with his announcement of unlimited bond buying in a bid to help resolve the eurozone crisis. Milburn was happy then to add tactically to the portfolio, adding another 1 per cent to his 1.5 per cent exposure to Italian credit. He already had 1 per cent in telecoms Wind Italy and 0.5 per cent in tamper proof bottle top producer Guala Closures.

He says: “We were happy to take some more tactical positions in Italian credits, which were telecom company Telecom Italia and toll road operator Atlantia. We put half a per cent in each. I bought them just to get some exposure to peripheral countries’ bonds.”

While peripheries countries bonds funds may look cheap Milburn says he is not about to buy any other peripheral countries’ debt.

He says: “We still think the peripheral economies will be under stress. We are prepared to dip into Italy, but we were not prepared to dip into Spanish, Portuguese or Greek credit.

“The Italian economy is on relatively firmer footing than the other peripheries. Its growth has been rubbish and its debt has been big for ages, but the government is not having to put through significant fiscal austerity relative to us, as they are running close to a balanced budget. If it is looking to reduce government debt, it may have to do that, but keeping it stable is not too hard.”

He adds: “We are prepared to reach up from high yield into the lower end of investment grade, because these credits are household names in Italy. We thought there was enough value or yield in those names. Telecom Italia is yielding just under 7.75 per cent for some slightly longer-dated bonds.”

Milburn says they have already seen some of the upside with a rally in Italian bonds.