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Buy & Hold forecasts double-digit bond yields when virus passes


The coronavirus crisis does not have to be disastrous for all investors. There are some who, despite the temporary correction, could earn a lot of money, including double-digit returns, in the case of those who invest in fixed income. The Spanish manager Buy & Hold looks back with similar situations and remembers that clients, in the months following the crisis, covered themselves with the bonds, and "this time it will be the same again."

In the world of fixed income, there have been no increases in spreads on such large bonds since the great financial crisis of 2008. Fear of a collapse of the economy by Covid-19 has caused credit spreads' high yield 'have increased more than 500 basis points in a month, up to 800 basis points, and that investment grade credit spreads have risen 60 basis points.

Buy & Hold, which has one of the best funds within the fixed income category, is increasing liquidity to invest "at better prices", according to their partners in a letter to investors sent on the occasion of the pandemic. But not only that. They are also "slightly" rotating the portfolio towards companies that they consider "More attractive, both from a safety and profitability point of view."


The Spanish boutique estimates that, "Even in the worst case scenario, the economic and personal impact (of the virus) would be very intense but very short in time", Although, according to the available health and scientific data, he predicts that Spain is between one and two months away from reaching the worst. "And from there, the situation will improve and economic activity can be gradually restored." That is one of the two messages of encouragement that your letter brings.

The other is that this crisis is far from being that of 2008. At that time, bank balance sheets – "the heart of the capitalist system" – were damaged on a large scale by worthless junk mortgages. "A credit crisis like the one then did not recover in months, but in many years, and after much suffering and the very significant increase in unemployment," put those in charge, Julián Pascual, Rafael Valera and Antonio Aspas, in context. Instead, an economic break of two or three months like the current one "can have a fatal impact on a company that is dragging problems, but in a leading or profitable company the impact will be small", reassure.


In the equity portfolio, however, they have not increased liquidity because they believe that the bags are going to recover "although it is impossible to anticipate when". What they have done with the crisis is reduce their portfolio from 30 to 25 actions "of high conviction and high quality".

Among these securities, there are companies with high returns on equity (20% at least throughout the cycle), with strong entry barriers, no debt or very limited debt and with "excellent" management teams.

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