67 WALL STREET, New York - May 28, 2014 - The Wall Street Transcript has just published its Investing Strategies Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced, professional Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Secular Growth Themes - Small Cap Investing - All-Cap Investing - Bottom-Up Stock Selection - Quality of Business - Growth at a Reasonable Price - Long/Short Strategy - Investment Risk/Return
Companies include: Vimpel-Communications (VIP), Deutsche Bank AG (DB), Cliffs Natural Resources Inc. (CLF) and many others.
In the following excerpt from the Investing Strategies Report, an experienced portfolio manager discusses his investing methodology and top fixed income picks for investors:
TWST: Can you please begin with a snapshot of the two funds you manage?
Mr. Lekas: One of them is the total-return fund, which has an average duration limit within two years of the Barclays Intermediate Aggregate Index, by prospectus. The short-term bond fund has an average duration normally under three years and invests at least 70% in investment grade or better, while the total-return fund invests at least 60% in investment grade or better, and again that's all by prospectus. And we invest in fixed income primarily.
TWST: Since you've been at the helm, how has your strategy evolved through the years, and how has it remained the same?
Mr. Lekas: I have added people to the investment team, number one. And we have improved our quantitative process, our risk/return model. So that's not subjective, that's very objective, and that's a big help - we really changed. We remain opportunistic and gravitate towards large-cap issuers when there is an opportunity.
TWST: Do you do qualitative research as well as quantitative analysis?
Mr. Lekas: Yes, we use everything from S&P, Gimme Credit, CreditSights and Bloomberg.
TWST: Do you ever meet with the management of the companies that you evaluate?
Mr. Lekas: No. However, we look at it. For example, Target recently replaced its CEO. We are going to take that into account, but we are more by the numbers because - remember - a CEO manages for shareholders. For fixed income, we care mostly about the balance sheet. For example, right now money center bank equities are getting hurt, so a CEO will be more motivated to manage for the shareholders. However, for us the balance sheet is more important as they have recently de-risked and improved leverage, and that's how we get paid. We also look at the income statement and operating cash flow.
TWST: Where is the overlap between the two funds in terms of strategy, focus and specific holdings, and where do they part ways?
Mr. Lekas: In a nutshell, one is more concentrated while the other is watered down. So you would find our higher beta names in the total-return fund, which is investment-grade at this time. For example, the short-term bond fund will buy J.P. Morgan senior secured notes, while the total return fund would buy the subordinated paper. And while for both we will outyield the index, total return will get 6% or 7%, whereas the short-term bond fund will earn 2% or 3% on that same purchase. And a piece of paper would be A+ or AA- in the short term, and total return fund might be BB+ or BB-. So for the same company, there's a different level on the capital structure.
TWST: Can you give one or two examples of specific holdings from each of the funds that best illustrate how your strategy successfully plays out?
Mr. Lekas: The most recent example is: We have been buyers of Gazprom (GAZP.ME), VimpelCom (VIP), Lukoil (LKOH.ME) and a lot of the large-cap companies in Russia. We really started that about a week or two ago, we began to nibble on a technical basis, and when the IMF agreed to a $17 billion loan to Ukraine, we saw that as a great opportunity. So that's an opportunistic move on our part We let the world tell us what it's going to do, rather than us trying to predict events. We got 8%, 9% on that paper, on those investments. What pushed us over the edge was when the IMF stepped up and said we're going to loan Ukraine the money
TWST: So overall are you finding the best opportunity in Russia, on a country-specific basis?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.