Weiss, Peck & Greer plans to continue to overweight corporates. Daniel Vandivort, head of fixed income and co-portfolio manager of the $145 million WPG Core Bond Fund, said the fund is looking to buy corporates because he feels they remain more attractive than other asset classes.
The fund holds 21% in corporates, exclusively in high-grade credits. The portfolio carries a 25% higher risk to the overall credit markets based on the sector's contribution to duration; at 4.5 years, the fund's overall duration is neutral to its benchmark, the Lehman Brothers Aggregate Bond Index. Despite the sustained rally in corporate bonds, Vandivort said he is optimistic on continued tightening because of positive technical factors, noting that issuance is falling short of maturation. He also said an improving economy is positive for corporate issuers, as well as a generally healthy corporate mentality that is much more fiscally conservative.
Vandivort declined to say what new assets he plans to purchase to maintain the fund's allocation to corporates. However, he said it is overweight in the insurance sector, which he said has cyclically generous premium levels, especially with the post-9/11 increase in premiums. It is also overweight the brokerage industry, which he said has had success with a high level of debt issuance and increased merger and acquisition activity.
He added that the risk management approach of broker dealers is much more sophisticated than several years ago and earnings are strong. On the flip side, Vandivort said he is avoiding the energy sector, which he believes is overvalued. Generally, the fund looks for strong single-A and triple-B names to keep its allocation overweight to the Lehman index.
In addition to corporates, the fund holds 8% in agencies, an underweight, because Vandivort said that spreads there are tight with not much yield. The fund also allocates 4% to asset-backed securities, 28% to Treasuries, 35% in mortgages, and 2.5% to CMBS. The fund has been moving from neutral to underweight in mortgages, primarily in Ginnie Mae and Fannie Mae pass-throughs, over recent months and is currently neutral. Vandivort stated that as the sector becomes richer he will move to underweight again.