William Larkin, portfolio manager of around $350 million at Salem, Mass.-based Cabot Money Management, is looking to enhance his portfolio by investing in short-duration corporates and agencies. Given the current economic environment and the uncertainty surrounding when the Federal Reserve will stop its rate hikes, Larkin is considering getting out of his long-term positions. "If the Fed hits four and three-quarters, how can the 10-year possibly stay below 4.6?" pondered Larkin.
"With corporates, we have been trying to take advantage of the sector lately by playing out a year; we can get 5% yields," he added. Larkin has primarily been looking at ultra-short corporates, as two of his most recent investments have been under a year long, with investment grade ratings. "We've been paying attention to short corporates rated A or AA," he said. Larkin recently bought into The Southern Company, a utility company, which came in at under a year and had a yield of 4.98% and DuPont, which lasts until Sept. 15 of this year with a yield of exactly 5%. "There is some risk [with DuPont], but people are buying into GMAC and I feel that there is more risk there," he added.
Larkin has also recently been looking into agencies. "I've been trying to remove the element of risk by looking for the best spread value. That means looking at high coupon non-callables that are straight bullets," Larkin explained. He also noted that at present, one of the areas he sees as having very strong value is six-month T-bills. "The only thing that I'm trying to stay away from right now is Fannie Mae and Freddie Mac, especially on the long end. I just don't like the risk," he noted.
Larkin's benchmark is the Merrill Lynch Domestic Master Index for A rated credits and above. His duration is about five years.
