Hedge fund star Hintze tips long U.S. high yield credit, short Europe

[November 18, 2014] By Nishant Kumar and Carolyn Cohn

LONDON (Reuters) - Hedge fund CQS is betting on U.S. high-yield corporate bonds following the return of widening credit spreads and volatility in the second half of the year, the firm's founder Michael Hintze, one of Europe's most influential investors, said on Monday.

Hintze, 61, whose firm manages about $14 billion, said he was also shorting European credits and flagged Russia as a "black hole" as it fights an economic crisis, sinking oil prices and a sanctions war with the West over Ukraine.

"What's happened more recently is that there is a significant differentiation," Hintze told the Reuters Global Investment Outlook Summit in London, pointing to a widening in spreads between lower quality corporate issues and higher grade credit.

"That is the opportunity and in the short-term, that is where (you) can get knocked around," he said in the interview at his office overlooking Buckingham Palace.

Corporate bond yields in the United States have seen a boost in the second half of the year as investors prepared for an end of quantitative easing, and the pick-up over high-grade debt has increased.

In Europe, Hintze said that although he had faith in European Central Bank head Mario Draghi, the demands of the different euro zone economies made it hard for Draghi to tread a steady path in monetary policy.

"In Europe, you have so many cross-currents," he said.

"Things are going at different speeds, it actually matters."

This contrasted with the United States, where the Federal Reserve needed to worry less about any divergence in the pace of growth in individual states.

Born in China, raised in Australia and now living in Britain, Hintze kept coming back to Russia which he said was one of his biggest fears.

He said Russia, which is European Union's third largest trading partner, could be a problem for European banks given their exposure to the country.

"There’s a reason why someone has bought $9 billion of CDS," Hintze, said referring to the increasing bets on the risk of a default by Russia.

Russian credit default swap spreads have been volatile since the Ukraine crisis escalated in March and the United States and European Union announced their first round of sanctions.

A fluent Russian speaker, Hintze's main $3.2 billion CQS Directional Opportunities hedge fund was up 2.6 percent through October this year. The fund returned 16 percent last year and was one of the world's best performing funds in 2012, with gains of 36 percent.

Follow Reuters Summits on Twitter @Reuters_Summits

(Editing by Toby Chopra)

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.