Speaking at a luncheon in Sydney hosted by advisory group Grant Samuel Funds Management, Payden & Rygel managing principal Mike Salvay said the Payden Global Income Opportunities Fund now has an allocation of 43 per cent in below investment-grade bonds.
Mr Salvay said while many investors are against the idea of buying defaulted securities he argued there only needs to be “one penny of realised loss” for a $500 million tranche of non-agency collateralized mortgage obligations to be become a defaulted security”.
“Just because there have been losses historically does not mean there will be losses going forward,” said Mr Salvay.
“If we believe there are going to be losses we build that into the price we’re willing to pay for the security.”
Mr Salvay argued that the current low yielding environment requires a “progressive strategy with alpha characteristics”.
“Our objective is to earn a spread of 250 basis points net of fees, over your bank bill swap, and you cannot do that by taking no risk in a portfolio,” he said.
“For us it’s about controlled risk, getting to the net of a 250 basis point spread and doing it in a very contained fashion.”
