Chuck Frank, v.p. and senior portfolio manager of $912 million at S&T Wealth Management, is keeping his distance from new issue corporate bonds. Frank bases his strategy on the assumption that return available on corporate bonds is not worth the risk of taking them on. "We much prefer looking at callables [agencies]. In order for us to invest in corporates [they] need to have exceptional value; even on the occasion that we do invest, we don't go out very long," Frank noted.
Although he may not be investing in any new issue corporates, Frank has not sold off his old corporate bonds. One closely held corporate is that of General Motors Acceptance Corp. "General Motors looks like they are going to sell off GMAC to a third party, in fact, the bond market sees it as imminent," Frank noted. "We should see a credit upgrade for them once they sell. We are not going to be actively buying any more, but it would be a good idea to hold onto GMAC; they will be stronger."
"We really don't look at specific credit situations. We wouldn't buy something like AIG, for example, because that has been overblown by the market; we don't look at specific recovery for value." Frank's portfolio is comprised of 84% government agencies and 16% in previously held corporates. His benchmark is the Merrill Lynch Intermediate Government/Corporate Index. "It's very suitable for what we do here," Frank commented. His duration is between three and four years.
