Chris Neuharth, portfolio manager at U.S. Bank Corp. Asset Management, says he is considering moving $80 million, or 2% of the firm's portfolio, from Treasuries into corporates. He reasons that corporate bonds should perform well over the next year, after the economy fully recovers. There is no particular trigger for this move besides the assumption that the macroeconomic environment has stabilized and that the risk of a double dip recession is reduced, says Neuharth. However, should the stock market enter a new phase of high volatility and sharp price declines, the firm would postpone the move, he cautions.
Greg Hanson, portfolio manager, declined to name any potential corporate purchases. But, he notes that the bonds the firm is considering for acquisition are in the five- to 10-year maturity range, where the bulk of corporate issuance can be found, adding that most purchases under consideration have a triple-B rating. Hanson adds that he favors two sectors--media entertainment and gas pipelines. He anticipates an increase in advertising revenues for next year for the media entertainment sector and likes the gas pipeline utility sub-sector because it offers bonds that have seen their spreads widen more than justified by fundamentals. He declined to divulge specific credits under consideration.
Neuharth says that the firm would finance the purchases through the sale of Treasuries, as those trade at historically rich levels. Last Monday, the 10-year Treasury yielded 4.13%. The firm would sell intermediate Treasuries to keep the move duration neutral, he says.
Based in Minneapolis, Neuharth and Hanson manage a $4 billion taxable fixed-income portfolio. They allocate 35% to mortgage-backed securities, 34% to corporates, 12% to Treasuries, 10% to agencies, 6% to asset-backed securities and 3% to commercial mortgage-backed securities. The fund is neutral its bogey, the 3.90-year Lehman Brothers aggregate.