Subject: [NEXTEL-1] FUND VIEW-Eaton Vance sees high-yield

From: [email-masked]
Date: Sun, 05 Oct 2003 04:35:35 -0400

FUND VIEW-Eaton Vance sees high-yield
outperforming
Reuters, 10.03.03, 3:59 PM ET

By Dena Aubin

NEW YORK, Oct 3 (Reuters) - U.S.  high-yield bonds may lose some luster after an
11-month rally, but they could still outshine plenty of better-quality bonds,
according to the manager of the Eaton Vance Income Fund of Boston.
"We can see it outperforming most if not all other fixed-income asset classes,"
said Eaton Vance portfolio manager Michael Weilheimer. "As long as the economy
grows, even if it's moderately or slowly ... that should be favorable for
high-yield."

Investors in the $1.4 billion Eaton

Vance Income Fund have benefited handsomely this year from a stunning run in
high-yield, or junk, bonds. With total returns of 21.4 percent year-to-date, the
fund is ahead of 78 percent of funds in its category, according to Morningstar.
Its 10-year annualized return of 7.3 percent ranks fourth out of 69 funds,
according to Lipper.
The fund owes much of its performance to an aggressive weighting in the
lowest-rated high-yield bonds -- the "single-B" range or below -- which have led
the market's gains this year.

Optimistic about the market's strength,
Weilheimer increased holdings in that
category this year to more than
four-fifths of the fund from about
two-thirds a year ago.

"If interest rates start going up a little going forward, you want to be focused
in that part of the market," said Weilheimer. "You'll be less vulnerable to rising
rates because coupons are higher, yields are higher, and they also should benefit
from continual credit improvement."

The approach paid off in late summer, when signs of economic recovery pummeled
Treasury bonds, pushing their yields and general interest rates sharply higher.
Better-quality high-yield bonds fell in price, while Weilheimer's fund held its
value.
Its biggest gains this year came from bold bets in such once-distressed sectors as
utilities and pipelines.

Weilheimer bought bonds of Dynegy
Inc. (nyse: DYN - news - people), AES
Corp. (nyse: DYN - news - people) and
Williams Cos. (nyse: DYN - news -
people) at steep discounts. As the
companies worked on restructuring
their finances, trimming debt and
conserving cash, the bonds rose as
much as 30 points in price.

The fund has a moderate position in
telecom bonds but is avoiding the
untested start-ups, or so called
"business plan" telecoms, which were popular in the late 1990s.
"One of our largest holdings is Qwest
Communications, and we do have
large holdings in some wireless
companies," Weilheimer said.

It also has significant positions in
Nextel Communications (nasdaq: NXTL
- news - people) and Nextel Partners Inc.,
which provides wireless services under Nextel's name.
Both have had a strong run, and Weilheimer is no longer adding to his holdings.

Reasonably valued now, Nextel
Communications might become a
compelling buy "if the rating agencies
ever shared the enthusiasm of equity analysts,"
Weilheimer said. "The credit quality doesn't
look that much different from AT&T Wireless,"
which is much higher rated, he said.

The high-yield market's gains may be
more limited going forward, partly
because the supply of discounted
bonds has dried up, said Weilheimer.

"There will always be opportunities, but they're not there by the fist-full
anymore," he said. Still, with average yields in the market north of 8 percent,
investors can expect total returns in the 10 percent to 13 percent range going
forward, he says.

http://www.forbes.com/business/energy/newswire/2003/10/03/rtr1099567.html

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