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| Tom Houghton |
Advantus Capital Management is looking to add up to $25 million in high-grade credits to bring the corporate allocation of a new $500 million custom mandate to neutral, said Tom Houghton. He is a portfolio manager responsible for the credit portion of $1.5 billion in taxable fixed income at the St. Paul, Minn., firm. "We don't think the credit cycle is over. There's some volatility in the market with the autos and concern about inflation but we think the corporate market is still in solid shape," he stated. Advantus is looking to pick up some recently widened names in cable/media, REITs and other triple-B credits. "We're looking to buy on dips, but we're not interested in getting back into the autos," noted Houghton, who declined to highlight specific credits he is considering. Houghton said the custom mandate is essentially benchmarked against the Lehman Brothers Aggregate Bond Index less its government and agency portion. The portfolio is 3-5% underweight credit and overweight mortgage-backed securities. "Frankly, the overweight in that mandate is there because we haven't found enough corporate credit," the manager noted.
The remaining $1 billion of Advantus' portfolio is benchmarked against the Aggregate and is around 2% overweight credit. Houghton characterizes his portfolio as defensive with fairly heavy overweights in utilities, REITs and rails. He declined to quantify his weightings. "At the beginning of the year, you were not being paid to take on risk. You're not giving up much to play in defensive sectors," he explained. Advantus is avoiding cyclical sectors, in particular consumer-driven ones. "The consumer is facing headwinds with rising rates and higher energy costs; we've seen some suffering a bit in there," Houghton added, pointing to recent widening in homebuilders. The manager highlighted Norfolk Southern, Pacific Gas & Electric and FirstEnergy as credits he likes.
Advantus' duration is neutral to slightly short. "We think rates will rise, but not an extreme amount. We think the 10-year will wind up in the 475 [basis point] range," Houghton said.
