Citigroup sees positive growth in high-yield and debt paper

High-yield corporate fixed income securities and emerging markets debt are two investment sectors that stand out for delivering positive returns amid global equity market uncertainty and volatility.

Although the sectors are not closely correlated in terms of performance - debt issued by companies is naturally priced on a different basis to sovereign or other emerging markets debt - some fund managers group them together because they share a particular flavour many investors are looking for. Both sectors consist of paper below investment grade, so they are risk assets which offer the potential of good returns.

Investors have been increasing their exposure to the two sectors over the past six to eight months, according to Peter Wilby, senior portfolio manager with Citigroup Asset Management. Mr Wilby is responsible for investment policy and strategy for Citigroup's emerging markets debt and high-yield fixed income portfolios.

Citigroup Asset Management manages about US$$6.5 billion in emerging markets debt and US$7.5 billion in high-yield fixed income. The investors are a mix of retail investors, pension funds and large global organisations.

'To put it bluntly, emerging market debt and high-yield bonds are global junk - anything below investment grade around the world that borrows,' Mr Wilby said.

'We like both high-yield and emerging markets debt, but we are a little more confident in our outlook for high yield. We favour the United States high-yield market a little bit more because I think it has a lower downside than the emerging markets. Emerging markets, unfortunately, are a little overly dependent on Brazil right now.'