NEW YORK — If Warren Buffett is buying junk bonds, can other investors be far behind?
Investors said the famed value investor's huge foray into the bonds of two troubled financial companies, Conseco Inc. and Finova Group Inc., could be just the tonic the beleaguered $681-billion junk bond market needs.
"Warren Buffett is the quintessential smart money," said Richard Cryan, who helps manage $1 billion in junk bonds for Evergreen Funds in Boston. "It may mean that we've seen the worst of the bear market in high yield, because the smart money is moving in and seeing opportunity."
At the same time, investors said Buffett's arrival doesn't mean all junk bonds, including the battered telecommunications and technology sectors, are ready to recover.
"I wouldn't interpret the moves as a suggestion [that] the entire market is oversold," said Brian Hessel, who helps manage $3.5 billion in junk bonds for J&W Seligman & Co. in New York.
Junk bonds, which are graded less than BBB and carry high yields because of their risks, have fallen 5.19% this year including interest, Merrill Lynch & Co. said.
They have fallen victim to falling credit quality, rising defaults, poor earnings and sales, disappearing investor cash, banks' reluctance to lend and illiquidity, among other reasons.
Buffett, with a $28-billion net worth, placed No. 4 on this year's Forbes magazine list of the 400 richest Americans.
Through his Berkshire Hathaway Inc. investment vehicle, the 70-year-old Omaha, Neb.-based investor bought several hundred million dollars worth of bonds of Scottsdale, Ariz.-based Finova, a commercial lender, this fall, according to the Wall Street Journal, citing no sources.
Buffett also bought a similar amount of bonds of Carmel, Ind.-based insurance and finance company Conseco, the article said, citing sources familiar with the matter. Conseco is trying to turn itself around after overpaying in 1998 for loan company Green Tree Financial Corp. and ousting its chief executive in April.
"Buffett has bought a couple of fallen angels," said Arthur Calavritinos, who helps runs the $792-million John Hancock High-Yield Bond Fund. "He's in effect bought a value stock that gives him a handsome semiannual payoff from the coupon."
Berkshire Hathaway did not comment on the article.
