New York (HedgeCo.net) – According to an article in last week’s Wall Street Journal, a sizable contingent of bond fund managers are taking advantage of this year’s robust market for debt securities by locking in yearly gains, content to wait until January to seek out any new opportunities.

In particular, managers of funds investing in riskier debt, such as junk bonds, asset-backed securities, and leveraged loans have spearheaded the trend. Given the elevated level of risk associated with these strategies, many managers appear satisfied to let year-to-date returns speak for themselves. As of November 10, junk bonds have returned 52.38% year-to-date, while asset-backed securities have posted a 24.69% return. Additionally, leveraged loans have returned 48.5% on average. Concedes Chris Munck, a trader at B. Riley & Co., “We have had a hell of a rally here. I can’t imagine there is any more upside.”

This theme reflects one of the investment community’s headline trends of 2009, the return to risk. For the opportunistic hedge fund or money manager, the end of 2008 presented a tremendous buying opportunity. While a significant number of funds unloaded assets in order to meet investor redemptions, purchasers were able to scoop up assets, especially less-liquid debt instruments, considerably cheaply.

Meanwhile, with the backing of a fresh string of government programs, including the Term Asset-Backed Liquidity Facility and the Federal Reserve Bank’s purchases of Treasury and mortgage bonds, these assets have recovered their values quite quickly, rewarding opportunistic buyers as the demand-and with it, prices- for such securities has risen.

Dave Wormus
Contributing Writer, HedgeCo.net
news@hedgeco.net