“There have been a couple of industry themes in the European credit markets that we thought were important and we have played those,” Barnard said. “One such theme is the re-regulation of the banking sector: A lot of Tier One bonds that were issued under the previous regulatory regime are now getting phased out, so they no longer count as capital, and that has been a nice structural theme for us and those bonds have performed well. There are many examples, like a Barclays bond that Barclays came to buy back from us at a premium.”
Within the European high yield market, Barnard also participated in the very active wireless sector, where things are moving and shaking, since “European regulators are now allowing four-player markets to consolidate into three-player markets and that is beneficial to the high yield bond market, as there are a number of small mobile phone companies that could get taken out by larger telecom players.”
Companies such as Italy’s Wind “have been nice contributors to performance,” Barnard said, “and the other theme is Vodafone buying cable TV broadband assets: they bought [Germany’s] Kabel Deutschland’s and [Spain’s] ONO’s, and there’s speculation they may continue to buy more, for example from Liberty Global, which has assets in many different countries in Europe. We think there is an industrial logic to that and the bonds we own have benefited from it, so all in all, there have been quite a few nice themes in European high yield that will also be important going forward.”
The Strategic Income Fund, which is for U.S. investors, is run in a similar fashion to a U.K.-based unconstrained bond fund that Henderson launched in 2003. It invests in securities across a variety of fixed income sectors including international investment grade corporate and government debt, international high yield debt, emerging market debt, U.S. government and corporate debt. The Fund may also invest in dividend-paying international equities as well as in financial derivatives, in particular credit default swaps, and interest rate futures, both of which are a fundamental part of the investment process for managing spread and interest rate duration risk.