RLAM’s Binns: Market too focused on liquidity

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Recent liquidity concerns seen across bond markets has thrown up some decent value opportunities, according to Royal London Asset Management’s Paola Binns.

The credit fund manager says often looking at bonds not tied to a particular benchmark can present better buying opportunities and have allowed her to trade cheaply.

She says: “I think the market depends too much on liquidity. We know the banks decreased quite dramatically their balance sheets for trading in the market, so what you find is that liquidity is not there even for bonds that are highly rated and in a benchmark.

She says: “With investors nervous about the uncertainty in markets, many are changing elements within their investment portfolios, which, in some cases, sees them moving out of certain areas in fixed interest. As such, a number of managers are selling their positions and holdings, making them distressed sellers.

“This provides the perfect opportunity for fund managers who are seeing inflows into their funds to set the price for credit and pricing in any associated risk to the position.”

Binns praises the advantages of looking “off benchmark” and not being guided by ratings agencies.

She adds: “We think that the pricing of liquidity is too high within the market so we are looking at well-diversified portfolios. We are looking beyond benchmark ratings and look for best value, which doesn’t mean more risk necessarily.

“Very often the best value is within these secured types of assets which trade at a discount because they are outside a benchmark and not many people look to buy them so they tend to trade cheaper than bonds that are perceived to be more liquid.”