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Aviva's Higham: liquidity a big issue for bond managers

Aviva's Higham: liquidity a big issue for bond managers

Liquidity is one of the biggest issues facing bond investors, according to Aviva’s Chris Higham, and he warns that it is likely to worsen before it improves.

‘Liquidity has been difficult in corporate bonds for the last four or five years. That has been a problem that we have been grappling with. But it is still at levels that we are able to deal with as portfolio managers. It’s an ongoing challenge and I think it is likely to get worse before it gets better,’ he said.

Despite this, Aviva Investors Corporate bond fund manager Higham is still finding attractive stockpicking opportunities.

His favourite bond in recent months has been US packaging company Reynolds Group. ‘It has been one of my best performing bonds. It was trading at 50p in the pound – that’s probably been our star performer,’ he said.

Higham’s other top holdings include civic  infrastructure companies, such as shopping centres – including Meadowhall in Sheffield and Manchester’s Trafford Centre – alongside Tees and Hartlepool Ports.

While lacking in glamour, these assets have a ‘unique’ role in the British economy and have continued to provided solid performance in recent years.

‘They are all quite unique assets but we like them because they are secured on real assets,’ he said. ‘A shopping centre in Sheffield might not seem ideal but there are going to be people there with money to spend.’

Pubs, which have also proven hardy performers during recessionary times, also feature in Higham’s funds and he particularly likes Spirit Group. ‘It recently demerged from Punch. It’s a managed asset – we like them – and we have a yield of 8% secured on a real asset,’ he said.

On the domestic front

Also on the domestic front, a holding in Odeon has proved fruitful as the company fights back against technological changes and still draws crowds to high street cinemas.

‘There are more people going to the movies than ever before. Changes in technology are helping them rather than stubbing out their business model and they are encouraging people to go to see films.’

Capitalising on the growth in high-end consumer spending in emerging markets and the desire for status symbols, Higham is backing luxury car manufacturer Jaguar.

‘Jaguar is paying a yield over 8% for a company that has got cash on its balance sheets, and that company has never been in better shape than it is today. It can’t build cars fast enough,’ he said. However, he is realistic about the cyclicality of the automobile sector and hopes to time his exit appropriately.

‘Autos are cyclical and while it is getting it right, it might not in the future. It’s hard to see them getting it wrong in the next two years but it is easy to get the product wrong.’

Higham is manager of four bond funds, including the Aviva Investors Corporate bond fund, which has returned 50.37% over the last three years compared to the benchmark’s 37.2%.

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Chris Higham
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