Credit Funds

Nonius · Post by **Nonius** » Tue Dec 07, 2004 4:42 pm

Did Credit Funds in general take hits in May of 2004?

Nonius · Post by **Nonius** » Wed Dec 08, 2004 10:46 am

also, I heard a couple of different credit fund dudes say they "beta weight" spread stress tests.....what are they talking about? are they regressing spreads to something like an index?

Rookie_Quant · Post by **Rookie_Quant** » Mon Dec 13, 2004 4:09 pm

RE: may...HY in general came back some...but for the most part none of the funds i look at regularly got hurt

RE: beta-weighting...I talked to a guy once who used a similar-sounding phrase, and he was doing exactly that...regressing spreads to an applicable index.

Nonius · Post by **Nonius** » Mon Dec 13, 2004 4:20 pm

we are specifically negative on the crap end of the spectrum...mostly because of the SuckCool principle. anyway, yes, I keep on hearing "beta weighted" this and "beta weighted that". I hate getting some jargon thrown at me when I don't know precisely what the pile of words mean.

Rookie_Quant · Post by **Rookie_Quant** » Mon Dec 13, 2004 5:13 pm

as for the HY end of the spectrum...i think i get about 5 emails a week from start up HY US managers, long-biased...i think its time to short.

Nonius · Post by **Nonius** » Mon Dec 13, 2004 5:37 pm

perhaps that makes sense, perhaps.....the Anti Credit Fund? If I could locate the next Xerox/ABB, I'd be happy.

Johnny · Post by **Johnny** » Mon Dec 13, 2004 6:44 pm

Short credit = long puts = Empirica. ??

Rookie_Quant · Post by **Rookie_Quant** » Mon Dec 13, 2004 7:35 pm

long vol (puts) = short credit is one idea...but Empirica doesnt like us Sad

there are some funds which are long some yield to call and short HY based on real credit work

and there are also some long CDS long equity a la Merton, etc. designed to be short credit.

Pick your flavor.

kr · Post by kr » Mon Dec 13, 2004 8:23 pm

Johnny, that's exactly what I was thinking, I actually wrote the post and then cancelled it

there are some tight names one can trade - JCP, AW < 100bps - but I'd much rather be market-neutral. Even if you are short DDS, long JCP - i.e. an honest basis trade - you have to be careful because tighter market spreads = basis spread compression = losses. I'm happier in tactical short-horizon longs, when the thing rolls off you can reinvest in a different climate. For this, I say you play EDS on solid invest-grade co's or reasonably short-maturity on BB-rates in somewhat-stable businesses.

Example on short credit: do you like short DAL at these levels? short CHTR? short LVLT?

three stupid companies, but also three short trades I would not do. If you go long 5y CHTR @ 1500bps, what is the likelihood that you will close out at the end of year 1 at worse than 5y=1900bps?

Rookie_Quant · Post by **Rookie_Quant** » Mon Dec 13, 2004 8:36 pm

kr,

not being familiar with name-specific issues, what do you think about a strategy thats long middle market active workouts and short broader-followed HY higher beta names? i.e. is the short part of the equation even worth it?