Mellon range gives in to high yield pull

Global investment company capitalises on Pareto’s American links to run two fund additions. Roxane McMeeken reports

Mellon Global Investments has added two new funds to its multi-manager range in an attempt to capitalise on the expansion of the worldwide high yield bond market.

The firm has chosen US-based Pareto Partners to run the new Mellon Global High Yield Bond Portfolios, available in both euros and US dollars to individual and institutional investors throughout Europe. John Little, chief executive of Mellon Global Investments, said he decided to add global high yield to the international product range, following the growth of the so-called junk bond market. The firm, which is the ex-US arm of the Pittsburgh-based Mellon Financial Corporation, adds funds where there is deemed to be a significant interest in a particular asset class from all types of investor. Mr Little says, “we don’t launch a product unless we are sure we can get significant assets.” He expects the new Pareto offerings to net E25-50m within the next 12 months. Mellon Financial has more than E565bn in assets under management. Yield Appeal Low-rated bonds were once almost the exclusive preserve of US issuers. But with the economic problems of the past three years, increasing numbers of companies are issuing high yield bonds across the globe. “Global high yield definitely now has a place in high net worth portfolios,” says Mr Little. “Many clients do a barbell job and jump straight from nice, safe bonds into ultra-risky equities. High yield bonds give them the opportunity to explore the middle ground in between.” Pareto was the natural choice of provider for the high yield mandate, according to Mr Little. Not only is it a specialist in currency overlay strategies and fixed income, but Mellon also holds a one-third stake in Pareto. “We have a long-established relationship with Pareto and their high yield product has a great track record,” says Mr Little. “The team has actually been together for about a decade, although not always working at Pareto.” Style key However, he confides that Pareto’s investment style was the clincher. “They make the point that they get their returns by avoiding disasters rather than by buying at 50 per cent of value and trying to sell at 100 per cent. They look at high yield bonds and take a cautious approach. The aim is to avoid blow-ups.” Despite being a global product, the Pareto strategy still favours US bonds in order to ensure diversification across a range of industries. The product is run by a team of eight, which includes six portfolio managers and two analysts. The senior fund managers are Michael J. Kimble, chief financial officer and Taylor B. Wagenseil, a managing director. Mellon has set Pareto the performance target of outperforming the Merrill Lynch High Yield Master II Index. Approximately 90 per cent of this index is invested US fixed income instruments. The Mellon Global Investments range includes emerging markets, global equity, US equity and Index tracking products. They are sold to individual investors through private banks, insurance companies, funds of funds and fund supermarkets.

‘Many clients do a barbell job and jump straight from nice, safe bonds into ultra-risky equities.’
John Little, Mellon