Top BlackRock fund says 'cash is king' on high recession risk
A fund that loaded up on risky debt in 2019 is dodging the worst of this year's market chaos with a very different mantra: Cash is king.
Sergio Trigo Paz, who helps oversee the $1.6 billion BlackRock Strategic Funds - Emerging Markets Flexi Dynamic Bond Fund, said he boosted the portfolio's cash holdings to 20% by early February while trimming positions in high-yield bonds as the coronavirus outbreak in China worsened.
The London-based investor also said he started shorting some Latin American currencies, buying index credit-default swaps and piling into havens such as the Japanese yen and Swiss franc. Trigo Paz warned the probability of a near-term global recession is "high" as the virus takes its toll on almost every country.
"Cash is king," he said in an interview on Friday. "You had an environment where the first half of 2020 looked noise-free, which was all very positive for high-yield emerging-market credits. But the coronavirus was a game-changer."
Trigo Paz's bond fund has returned 0.8% this year, beating 97% of peers, according to data compiled by Bloomberg. That's quite a feat considering its top holdings in mid-2019 included notes from Angola, Ukraine and Ecuador. They also included debt from state oil companies Petroleo Brasileiro SA, Petroleos Mexicanos and Petroleos de Venezuela SA. Those are among the the hardest-hit assets from an oil price war that sent Brent crude to a four-year low.
Coronavirus cases worldwide have climbed to more than 167,000 with deaths surpassing 6,400. Schools, restaurants and events have shut down in the U.S. as the surgeon general predicted it will take at least eight weeks to get over the worst of the outbreak.
"The impact on economic activity will likely be sharp -- and deep," Jean Boivin, Elga Bartsch and Mike Pyle at the BlackRock Investment Institute, the firm's think tank, wrote in a report on Monday.
While he's relatively cautious for now, Trigo Paz said he's looking to buy some emerging-market bonds that slid to less than 30 cents on the dollar and have a low risk of default.
"Those names could be attractive -- definitely," he said.
