Credit Suisse Asset Management is playing it safe in its cash and short duration portfolio and is maintaining a duration-neutral position. Andrew Dickinson, who runs $10.5 billion of CSAM's $32 billion in global short-term product from London, says he plans to make housekeeping trades to maintain a neutral duration. He points out that the performance of the $1.75 billion in short-duration bonds he runs is determined by decisions on duration and yield curve placement and is not as affected by credit risk. For now, though, he is not making a duration bet given the uncertain direction of the U.S. economy and doesn't plan to alter the structure of his portfolios.
"There has been a lot of volatility recently as people who were short duration in January moved out the curve after three poor non-farm payroll numbers," he explains.
At the moment, Dickinson's funds are neutral the 1.9-year duration of the Merrill Lynch 1-3 Year Eurodollar Bond Index for its corporate bond investments, and neutral the 1.77 duration of the Schroeder Salomon Smith Barney 1-3 year U.S. Treasury Index for its investments in government securities. Dickinson says he typically spreads his bets across the curve, including up to five years.
In the corporate sector, Dickinson is overweight telecommunications and consumer non-cyclicals, and underweight autos. All other sectors are neutral. The funds use corporate bonds to add yield but Dickson says his main strategy is on the rate side. As a result, he only plays in investment-grade debt. "What I want from corporates is a high degree of confidence that my principal will be repaid in the next year or two. There is no way I would buy junk or even triple-B."