Corporate bonds, an alternative to shares

lefigaro.fr / jdf.com – Bonds they still remain deprived of interest to investors relative to bonds?

Eric Pictet – Ask borrowers what they think of Russian loans! The risk is never where you think it is. Investors believe that a state can not go bankrupt, but who would have thought that Russia in the late 1990s and Argentina in 2001 would have to default on their external debt, that Greece would be in big trouble. States are less likely to bankrupt the companies – there are fewer, but the consequences are serious both economically and socially.Personally, I prefer to be paid with a coupon of 8% to 9% in seven years in a fund with hundreds of companies rated BB / B buying a loan to ten years of a State debt at a rate of less than 3%.

And compared to actions?

Corporate bonds are better adapted to periods of uncertainty as shares. The capital gain is limited, but the coupon is more regular and higher than the dividend. The risk capital action is 100%. This is not the case of an obligation because the creditor has collateral. The recovery rate is about 30% to 50%. The profile of this asset class is suitable for investors who want to gradually increase their exposure to higher-paying assets, without having to expose themselves to greater risks of stock markets.

Since the beginning of the year, European equities, for example, dropped 15% while corporate bonds rose by 3.52% respectively on the segment investment grade and 5.67% on the "high yield "(bonds with a high risk, Ed). Investors fear less for the company credit for their results. If an investor were to lose money with corporate bonds in the next twelve months, it probably would mean that the shares have lost 30% of their value. Corporate bonds are much less affected than shares, for any period of recession coupled with deflation.

Emissions of corporate debt have experienced a slump in the month of May This will he continue in the second half?

In 2009, emissions have been a record 180 billion dollars.The broadcasts in May 2010 were only $ 6.9 billion as rising demand has slowed the coupon amount of emissions. However, since the beginning of the year, the total emission displays a record 117 billion dollars. These amounts do not constitute additional debt for companies but largely from the refinancing of existing programs or bank debt.

At Muzinich, you are mainly positioned on bonds rated BB / B Why?

Bonds rated BB / B, ie just below the bonds' investment grade (securities rated borrowers between AAA and BBB-, corresponding to a low risk, Ed) can be considered as an alternative to actions. In an uncertain economic environment, the coupon received (currently between 8% and 9%) is a useful cushion to better absorb the cuts.Historically, the correlation with the market share is 50% with a volatility almost twice lower. We believe that an investor in this asset class, except external shock, should get a return of 6% to 11%.

What areas of focus?

We make a detailed analysis of each issue and we select companies able to generate sufficient cash flow to repay interest and term refinance. In Europe today, we are exposed on the cable sector, environment, services and under exposed to the construction, automotive and airlines.

• The shares yield more than bonds
• The high yields are sought by individuals
• Retirees continue Greece
• Ireland lose close to his rank of reliable borrower
• The Bank of Japan urged the state to reduce its debt