The economy's response to both fiscal and monetary stimulus will lead to a rebound in equities and a backup in bond yields, making this a good time to play cyclical credits, argues Dan Portanova, portfolio manager with GroupAMA Asset Management. Portanova, manager of the firm's $700 million fixed-income account, employing a "get in early" style of investing, has recently participated in the Lehman Brothers Holdings and Morgan Stanley Dean Witter bond offerings. He bought the Lehman Brothers 6 1/4% notes of '06 (A2/A) because he sees them as a pure play on the presumed rebound of the institutional trading and sales business. He bought the Morgan Stanley Dean Witter 6 3/4% notes of '11 (Aa3/AA-) not only for the strength of its institutional businesses, but its diversity of earnings streams, including advisory and asset management services.
Portanova's bet on Dow Chemical and DuPont represent his belief that the economy will be solidly in recovery by the fourth quarter of this year. He bought the Dow 618% notes of '11 (A1/A) and the DuPont 678% notes of '09 (Aa3/AA-) based upon their leverage to a cyclical recovery in earnings throughout the battered chemical industry.
The New York-based manager has an asset allocation of 60% corporates, 25% treasuries and 15% MBS/ABS. The fund uses the Lehman Brothers intermediate government/credit index, and at 3.28 years, is slightly short its bogeys' duration of 3.65 years.