Royal London Asset Management will add the new commercial real estate mortgage-backed issue from Annington--a securitization of former military housing--to its £2 billion corporate bond portfolio. Eric Holt, portfolio manager, says he likes CMBS, because they are triple-A rated and backed by a physical asset. He also recently bought the latest Canary Wharf deal, which was priced at 70 basis points over gilts and had a coupon of 534%. He expects the Annington deal to come to market at about 100 basis points over gilts with a coupon of about 6% when it hits the market. The firm deployed new cash to fund the purchases. In general, the firm is underweight ABS at 7% versus its benchmark the Barclays Capital Over Five Year Sterling Non-gilt index.
Elsewhere in the portfolio, the firm has sold off longer-dated gilts and has bought new issuance from the European Investment Bank (the 6% of '28) and Kreditanstalt für Wiederaufbau (the 5.55% of '21)--both triple-A rated quasi-sovereigns. Royal London had been underweight triple-A issuance, but Holt says the market has seen a lot of spread compression in corporates and he decided to increase allocation where spread tightening has been less, and where he won't see as much issuance in the future. Royal London is also underweight telecoms, but has been putting cash to work cautiously. Most recently, the firm has bought mmo2's sterling-denominated 7 5/8% of '12 and France Telecom's sterling-denominated 7% of '05.