Evergreen Investments will look to add exposure to sectors such as utilities and telecom that had been beaten up but are showing signs of recovery in a bid to add yield. The firm may also look to financial sector credits that have come under pressure such as J.P. Morgan Chase and Citigroup, says David Fowley, portfolio manager of the $530 million Evergreen limited duration fund. Fowley believes these are fundamentally sound credits that will eventually weather the negative headlines that have plagued them of late. Evergreen may add an additional $20-30 million in corporate exposure by the end of the first quarter of next year, though the fund will focus on buying credits that appear undervalued rather than meeting a predetermined target.
Though Evergreen plans to add exposure to the financial sector, it recently sold the Bank One Corp. 5.625% notes of '04 (Aa3/A) at 104.42. Fowley worries that investors will sell Bank One's bonds due to its involvement with troubled healthcare finance company National Century Financial Enterprises. Fowley says he may buy them back, however, if they trade down substantially. Evergreen also recently sold some Household International bonds, as they traded up dramatically after HSBC Holdings reached an agreement to purchase the U.S. finance company. Household's 6.5% notes of '06 were trading at 365 over Treasuries last Monday.
Another move Evergeen made recently was to sell $60 million in agency debentures maturing in the next 18-20 months, using the proceeds to buy two-year on the run Treasuries as well as three-year Treasuries.
At a 1.66-year duration, the Charlotte, N.C.-based fund is slightly long its bogey, the 1.63-year Lehman Brothers one- to three- year government/credit index. It allocates 38% to corporates, 18% to mortgage pass-throughs, 15% to Treasuries, 13% to asset-backed securities, 11% to collateralized mortgage obligations, 3% cash and 2% to agencies.