Seneca Pressroom

A focus on quality
Source: International Financing Review - September 15, 2007
September 2007

SCM Advisors' Portfolio Manager and Director of Research Al Alaimo was quoted extensively in an article by Joy Ferguson on SCM's innovative high quality approach to high yield investing.

Quoted from International Financing Review:

The US high-yield market has lost its lustre amid sub-prime market contagion and an overly aggressive LBO calendar... But some investors are proving they can still beat the odds. Al Alaimo, portfolio manager and director of research at SCM Advisors, takes a high quality approach that has stood up against the weakening market.

Market veteran, Al Alaimo, has seen a wide variety of market conditions in high-yield, including the 1998 and post 9/11 meltdowns.

On the current state of the high yield market:
"The high-yield market is facing an unprecedented level of risky leveraged buyout financings that have been bridged by underwriters for companies such as TXU, First Data, Clear Channel, and Alltel, amongst others," said Alaimo.

"These pending deals, coupled with over US$4bn in Triple C rated paper that could not be placed in June, have created a technical overhang on the Triple-C sub-sector and the overall high-yield market," he added.

On the benefits of a higher quality approach to high yield:
"Our strategy is a higher quality one where we maintain a higher average credit rating than the overall market over the course of a credit cycle. Right now, we are substantially underweight in Triple C bonds, equal weight in Double Bs and well overweight in Single Bs," said Alaimo.

Alaimo's high-yield portfolio contains 75 to 85 names versus several hundred for the index. "We are very targeted in our approach," added Alaimo. "We are not trying to mimic the broader indices." Due to smart credit selection, the fund was able to outperform Triple Cs for the first half of the year, which had substantially over-performed in that time frame...

Going forward, the fund will stay committed to its high quality strategy. "We think it's smart to avoid the Triple C market because of the substantial technical pressure that will remain in that market for the foreseeable future," said Alaimo.