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Hedge fund manager Boaz Weinstein warns investors to avoid junk bonds, especially for retailers

  • "The reward isn't there" for junk bonds given the risk, Weinstein said at the Delivering Alpha Conference in New York on Tuesday.
  • The hedge fund manager is short the debt of retailers and hospital firms.
Boaz Weinstein speaking at the 2017 Delivering Alpha conference in New York on Sept. 12, 2017.
David A. Grogan | CNBC
Boaz Weinstein speaking at the 2017 Delivering Alpha conference in New York on Sept. 12, 2017.

Saba Capital's Boaz Weinstein said the high yield debt market is overvalued and as a result he is betting against the bonds of retailers and hospitals.

"Let's unpack high yield … the reward isn't there" given the risk, Weinstein said at the Delivering Alpha Conference in New York on Tuesday, noting that smaller retail investors own more junk bonds than they ever have before.

Weinstein cited what happened during the energy industry's credit crisis in 2016. He noted the prices of some energy companies' bonds and equities both fell nearly 90 percent.

"There was no safety being in a debt instrument," he said.

While the hedge fund manager is short the debt of retailers and hospital firms, he is long the shares of the same companies due to relative valuation.

"Equity is at a much more rational price versus the credit," he said.

Weinstein is the founder and chief investment officer of Saba Capital Management, a $1.7 billion credit hedge fund based in New York City. Weinstein founded Saba in 2009 with a team that came from the Deutsche Bank proprietary credit trading group, which he started in 1998.

His comments came from the Delivering Alpha conference in New York, which is being presented by CNBC and Institutional Investor.

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