John Burger, managing director and head of investment grade credit at Merrill Lynch Investment Management, is looking at corporates with continued room for credit improvement. "Right now our strategy is focused around buying into crossover.
corporates that have a positive credit trend and have a solid chance of achieving an investment grade credit rating in the next year to 18 months," he explained.
Burger is currently invested in First Energy, JCPenney, DRHorton and Computer Associates--four corporates that fit his specifications. Burger's strategy is based in his belief that corporates with no more debt to pay off, or similar actions to undertake, have little room for credit improvement. Burger oversees a fixed-income portfolio of about $8 billion.
He has been putting his new cash primarily into crossover investments and utilities, but is not a believer in longer-dated corporates. "I am heavily underweight in 30-year corporates; the flattening of the Treasury curve tends to cause them to underperform," he said.
Burger does not have a solid benchmark, relying more on his peers, but admitted to following the Lehman Brothers Aggregate Bond Index.
His investment strategy is based on several factors. "We are a research-driven value shop, so we tend to look at longer-term credit fundamentals with an eye toward the position of short-term technicals," Burger said. He stated that the risk-reward factors in the market were positive and volatility was low. This bodes well for near-term credit performance. "We've got a good chunk of money in there," he added. Burger declined to quantify a dollar amount.
