Even with the challenges currently facing financial markets — tight lending, a wave of refinancing, historically low treasury yields, and a still-unstable recovery — there are opportunities for investors looking to corporate credit markets.
That was the message experts shared with students November 3 during a panel discussion at the Investment Management Conference. Held at the University Club of Chicago, the event was sponsored by the student-led Investment Management Group.
“When we step back and we talk about alternative opportunities to invest in, we look at the fundamentals — investment grade companies — and we don’t think this is totally appreciated. They are very strong right now,” said Adam Spielman, ’97, senior managing director and head of credit research for PPM America. “For what was a tumultuous crisis with things happening we have never seen in our lifetime, it was really more of a banking crisis than one of industrial America.”
The best opportunities, Spielman said, are in industrial grade, nonfinancial markets. But there are also opportunities to invest abroad, as well as with U.S. multinationals, who are generating up to 50 percent of their profit overseas, Spielman said. “We try to think a lot about companies we invest in and where they are selling,” he said.
Irina Goedemans, ’02, a vice president for Capital Research and Management Company, echoed Spielman’s comments that companies with export opportunities to emerging markets — which, in her coverage, includes select specialty chemical and food and beverage companies — can provide investment opportunities. There are also domestic opportunities even in a low-growth U.S. economy; for example, media companies that have strong content can also be attractive, she said.
Given that emerging markets are so popular, panel moderator Brian Ropp, ’00, vice president in the fixed income division at T. Rowe Price Associates, asked whether would-be investors should be concerned about a bubble. “I’m a little worried it has become a little too popular, but I do not think it’s a bubble,” said Michael Conelius, a portfolio manager at T. Rowe Price. “You need to be aware of the consensus nature of the trade today. That said, the fundamentals are pretty good.
“It is an exciting time to be looking at emerging companies. One downside, in addition to the popularity of the trade, is that there is very little liquidity. Over time, as the investor base gets larger, there may be more of a two-way transaction, where you have people who are willing to take a profit to go into a new name. Right now, most of the investors are just buying and holding because the cash is coming in the door the next day.”
Liya Pozdeeva, a first-year student in the Full-Time MBA Program, asked the panelists about their biggest mistake: “What would make us better credit analysts, maybe something that was overlooked?”
“Never jump into an industry or sector that you are not familiar with,” said Stuart Lissner, managing partner for Apex Fundamental Partners LLC. “It’s really not that sexy, but it really comes down to whether there is a competitive advantage,” said Spielman. “If Google came in and killed your business plan, that wasn’t a very good investment decision. For all the talk about metrics and quantitative stuff, at the end of the day, you really have to step back and ask yourself, ‘Does this business really have a reason to be around?’”
Goedemans added, “Patience, discipline, and tenacity are important in our job. When something does go wrong in high-yield, it is hard to be the only one saying, ‘I still believe in it.’ But if you really think the ultimate value is greater than where bonds are trading, stay with it. “
— Patrick Ferrell