He pointed to signs of high leverage on new transactions and weaker covenants for creditors, and as such he has sold much of his B and CCC-rated and high beta holdings across Europe and the US.
The £2.56bn fund has also sold out of contingent convertibles (CoCos) believing that while they are good value they could be set for more volatile periods given concerns about rate rises in the US.
“We are definitely getting closer to the US lifting rates, and that could present a period of volatility that we need to be careful with as well as it will have implications for credit,” he said.
“High yield is a space where you really need to tread carefully and make sure you are in the right bonds with the right covenants as well, because I fear we may have not seen the worst warning as yet.”
Still, with the market dominated by powerful technicals driven by the European Central Bank’s bond buying, the outlook is far from clear.
Bezalel explained: “There is the planned eurozone issuance of government bonds at €250bn and the ECB is about to try to buy €60bn in paper every month until late 2016; so over the next 12 months you are talking about over €700bn of paper across mainly government bonds and then ABS and covered bonds on top of that.
“So, that means an overwhelming demand that is going to suppress government bond yields for quite some time, and so drive the ongoing demand for corporate debt across investment grade and high yield.”
While taking a prudent approach in trimming down high yield exposure, within that space Bezalel has still been buying into BB and B-rated debt and senior secured paper. In particular, he sees opportunities in telecoms, where he sees more consolidation to come with investment grade firms buying high-yield companies.
Late last year he also bought into Russia with issues from the likes of Luke Oil, Gazprom and steel specialist Severstal.
He explained: “These are companies with a lot of cash on their balance sheets. Despite the risks they are on yields of around 7% plus and you are being compensated.”
