Chuck Frank, v.p. and senior portfolio manager of $850 million at S&T Wealth Management, is moving forward with his investments in callable agencies and retaining corporate bonds he has held since 2001. "I'm an intermediate term bond investor, and as such I can survive if downgrades happen to the bonds that I'm investing in," said Frank.
Frank's taxable portfolio consists of 17% corporates, 1% TIPS bonds and 81% in callable Federal agencies, with a small allocation to primary callables. He utilizes the Merrill Lynch Intermediate Government/Corporate Index. His duration is about four years.
"The corporates that I currently own, I've had since 2001" he added. His corporates include Ford Motors and General Motors Acceptance Corp., which even in light of recent events, he has decided to hold on to. "I like the arrangement with GMAC and Bank of America, it makes them still a viable entity. Plus I don't think that GMAC will go down with the ship and the B of A relationship affirms that stance," he explained.
In terms of callable federal agencies, Frank is getting 1-1.5% above Treasuries, which he describes as "about average." "When rates are low we look for call risk, when they're high we go for call protection," he said. Frank tries to gain as much coupon as possible so that he can preserve market value if a sell off occurs. "There was a lot of turnover since July and then we got no calls, most likely due to the flattening yield curve environment. It just doesn't make any economic sense to redeem them," Frank stated.
"Right now with the way things are, I've got a few things influencing my investment strategy. Inflation expectation, economic growth and spread analysis are all playing a part. What we're trying to ascertain is where the value is in investment-grade bonds. Although I'm overweight in them, I still see a lot of value in federal agencies and not much in corporates, save for the ones we already own," he said. Frank used to see value in Municipal bonds from late 2004 to spring of 2005, but now sees only minimal value in those investments.
