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Marty Fridson: High-Yield Bond Investors Should 'Overweight' U.S. Compared to Europe

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Marty Fridson: High-Yield Bond Investors Should 'Overweight' U.S. Compared to Europe

High-yield bond expert Marty Fridson appeared on Benzinga's PreMarket Prep show Thursday morning to discuss his outlook on the global market and industries he favors amid market turmoil in early 2016.

Fridson favored industries typically viewed as cyclical, noting a price-rating discrepancy that favors potential investors.

"Utilities, homebuilders, automotive, and banks are the only [industries] of the 20 largest that are cheap for their ratings despite the ratings outlook is positive," he said. "What I've found is those characteristics tend to bode well [in the long term]."

Related Link: Deutsche Bank Ponders Multi-Billion Dollar Bond Buyback

Fridson warned against industries that are conventionally held to be anti-cyclical. He believes their appearance of recession resistance is baked into their pricing and investors shouldn't stake bets on them right now.

"What you want to stay away from are the more defensive industries, specifically cable and satellite TV, containers and healthcare," he said. "People take the view that these are rock-solid even in a recession, thinking that people will keep their cable subscription instead of taking their family to the movies, but notwithstanding that they're overpriced because of that defensive image. Despite it actually have negative ratings on balance. Those industries are heading for downgrading."

Fridson had advice for high-yield investors to weather the current Euro banking crisis: focus on the U.S. until Europe settles down.

"In Europe, [the banks] haven't improved their capital ratios as strongly as they have in the U.S. Europe is actually quite expensive in the high-yield market relative to the U.S now. If you have a global high-yield portfolio, we'd be advising you to overweight the U.S. and wait for a better opportunity to go into Europe."

 

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