Chandler Asset Management is looking to shift some 5-10%, or $60-120 million, of its $1.2 billion taxable fixed-income portfolio out of 18-24 month U.S. agency debentures and into two- to three-year corporates. Marty Cassell, portfolio manager, believes the economy is improving, but wants to see the major stock market indices unchanged or better over a three-month period before shifting the funds. He believes mid-May is the earliest the firm is likely to begin making the shift.
Among the issues Chandler owns, and to which it may add, are the General Electric 7.25% notes of '04 (Aaa/AAA) which were priced at 58 basis points over Treasuries last Monday. Cassell believes the market has overreacted to negative news reports on the financial health of the conglomerate. He is also eyeing the Household International 8% notes of '05 (A2/A), which were trading at 214 basis points over the curve. Cassell says he is encouraged by Household's latest earnings report. Another issue Cassell likes but sees rarely is the Pepsi 4.5% notes of '04 (A1/A), trading at 51 basis points over Treasuries last Monday. Cassell says he would prefer to see these spreads nine basis points wider before purchasing the bonds.
The San Diego advisory firm oversees several individually benchmarked accounts, but the bogey it uses most often is the Merrill Lynch one- to five-year government/corporate index. Chandler's duration was roughly even to that bogey, which stood at 2.24 years as of last Monday. Chandler allocates 65% to agency debentures, 20% to corporates, 12% to Treasuries and 3% to cash equivalents.