Cohen currently has 35% in high-grade corporates and declined to quantify how much further spreads would need to widen before she would start picking up corporates. "It's like when women go shopping for an outfit--you know when you see it, it's the right one," she commented. Fallout from Ford Motor Co. and General Motors downgrades have worried Cohen as well as a corporate shift away from balance sheet repair. Furthermore, accounting irregularities also have the investor wary of the credit space. "We're certainly not looking at clean balance sheets. Across the curve, we still have unresolved issues with accountants," Cohen explained.
Envision currently sees no attractive opportunities in credit, nor any real safe havens. Cohen essentially has 3-4% in sectors across the board. She said she is not looking to sell out of positions such as a large allocation to Tyco which has been in place since 2003 because the market is so illiquid and there is nothing attractive with which to replace it. "I'd much rather individual investors earn less and have less exposure to interest rate movements, we'll earn our coupons, have little downside and call it a year," she explained.
Cohen has a small allocation to high yield and some accounts who would like to re-enter high yield once the blow-up is completed. She does not think spreads will widen to 2002 levels of 900 to 1,000bps over Treasuries but does expect the default rate to increase. Envision uses no benchmark and the remainder of its fund currently lies in municipal bonds. Its duration is currently 2 3/4 years, slightly short of its normal three to 3 1/4 years on the view rates will continue to rise.