SLI's Sutherland piles into high yield in Strategic Bond fund

Standard Life Investments' (SLI) Andrew Sutherland has revamped the £87m Strategic Bond fund by significantly raising his high yield exposure from 15% to 50%.

Sutherland made the bullish move last week as with average high yield spreads at 9%, he believes a serious global catastrophe has been priced in.

However, the manager does not believe the economy will enter a double-dip recession and has made the tactical allocation switch in order to profit from poor investor sentiment towards the space, with high yield issuance also slowing in Q3.

"With spreads at 9%, now is the time to buy high yield as the space is discounting a serious global catastrophe, which I believe will not happen," said Sutherland.

"The economic data coming out of the US has been very positive. GDP at 2.5% suggests the economy will keep on muddling through and there will not be a double dip, with the housing market also showing signs of an up-tick in growth.

"Investor appetite for the high yield space has also waned in recent months as investors have instead been accumulating cash. New issuance has also dropped off from the strong start it had in the first half of the year - which is another compelling reason to up exposure to high yield."

Sutherland has boosted his European high yield exposure by 25%, tapping into companies in peripheral Europe which have seen their yields rocket on the back of investor concerns about these countries.

His holdings in this space include Smurfit Kappa, an Irish paper packaging company, which is yielding 8%.

"Valuations have hit extreme levels and the fact Europe last week bought itself quite a bit of time with eurozone ministers coming up with a deal to resolve the region's debt crisis is not reflected in the price.

"I believe with high yield corporates in good shape and default rates at lows levels - credit markets will have a strong fourth quarter to the year after suffering during the heavy market correction," Sutherland said.