T Rowe manager: ECB QE hint to stabilise credit markets

ECB president Mario Draghi said last month that the “degree of monetary policy accommodation will need to be re-examined” at its December meeting.

European high-yield indices staged a three-week rebound at the start of October, following a steep sell-off in the summer.

The manager of the €226m T Rowe Price European High Yield Bond fund thought the central bank’s latest rhetoric “will fuel stability in the market”.

Mr Della Vedova said: “The ECB knows growth is mission-critical and it continues to maintain a supportive stance, which builds a lot of stability in credit markets.”

The current primary risks for European investors typically came from external triggers, the manager said.

“September was the weakest month for European high yield since the back [end] of the eurozone-periphery crisis, but a number of aspects were at play,” he added.

Mr Della Vedova acknowledged some issues, such as the Volkswagen diesel emissions scandal, stemmed from the domestic market.

But said the problems were chiefly due to concerns over the US Federal Reserve’s delay in raising its interest rate and the nation’s growth outlook.

He said: “People have to be prepared for more regular volatility. The biggest risks are external, and while you cannot necessarily see them coming, you can be prepared.

“But fundamentals remain supportive and this will drive the market mid to long term.”

In terms of individual opportunities, the manager is looking to the cable and wireless industries, where he has 16.5 per cent and 9.6 per cent respectively of the fund invested.

He said: “We like the secular growth and drive we are witnessing in that market. People want better connectivity and are prepared to pay higher mobile phone bills.

“The fund is built from a bottom-up perspective and our exposure is down to stock selection.”

Geographically, this approach has left Mr Della Vedova with 10.8 per cent of his fund invested in France, 10 per cent in Luxembourg and 9.5 and 9.2 per cent respectively allocated to Italy and Germany.

But the biggest chunk – at 25.8 per cent – is in the UK, which reflects the fact the country is at a different stage of the monetary policy cycle compared with the eurozone.

“For a couple of years the UK has been one of the fastest-growing economies in the developed world,” he said.

The manager’s holdings in the UK tend to reflect consumer-related or turnaround stories.

His strategy is working, with the fund up 28 per cent since its 2011 launch to October 22 versus the Investment Association Global Bonds sector average of 8 per cent for the period, data from FE Analytics shows.