Fischer Francis Trees & Watts will continue to rotate out of bonds from bank and financial companies and into those from utility and industry companies, according to Sai Choy, portfolio manager for corporate credits. He says the New York manager of $40 billion in taxable fixed income has been loading up on utility offerings in the primary market, such as in the recent NiSource Inc. and American Electric Power Co. sales, and will look to continue to participate in new deals. "We've been reducing our bank and finance names and rotating into other sectors through the new issue market," he says.
Choi explains that bank and financial names have done well lately, on expectations of an improving economy, and he expects further tightened to come via other sectors that have not rallied as much, such as utilities. He's sold five-year paper from J.P. Morgan Chase and Lehman Brothers of late. Still, given the solid run the corporate bond market has posted in recent months, Choi says he would be a seller of even the utilities if they tighten much more. Ten-year AEP bonds were bid at 110 over Treasuries on July 25, "and if utilities run in 10 basis points from here, we probably would be a seller," he adds.
Overall, the rotation won't affect the firm's exposure to corporates. The New York money manager runs money against the Lehman Brothers aggregate bond index. It's overweight corporates--three months overweight in dollar duration terms, which is how the buy-sider calculates it.