Eagle Asset Management is looking to move its 5% corporate overweight to industrials from financials as it expects banks and brokers will underperform in a rising-rate environment. The asset manager is especially interested in picking up industrial paper in the new issue market, where concessions are easier to find, according to Robert Hyken, portfolio manager. His St. Petersburg, Fla.,-based team manages $1.8 billion in investment-grade fixed income. An example of an industrial credit Eagle recently purchased is the Motorola 7 5/8s of 2010.
Hyken added he would lighten his 15% underweight in Treasuries to 5% should 10-year Treasury yields rise to around 4.75% and credit spreads stay at current tights. The 10-year yielded 4.3% on March 7. The manager noted he would also lengthen his duration from 10-15% short of his duration's index to 5% short at that time, mostly through buying longer Treasuries. However, he stressed such moves would depend on conditions in the corporate and structured products markets.
Hyken is putting new cash to work in his current strategy of buying high-grade corporate and asset-backed floaters to take advantage of rising interest rates. The manager generally buys two-to-five year floaters that pay 10-20 basis points over three-month LIBOR, he said. One of his core positions is in Merrill Lynch floaters. He also sticks to high credit quality within asset-backed securities, buying triple-A rated credit card and auto floaters. "We're not trying to make a credit bet in floaters because the point is to track short-term rates. You don't really get the bang for your buck with taking credit risk with floaters," he said.
Hyken has also been making an overall move up in credit quality. Over the past three months, he has cut back his holdings of triple-B credits to 2% from 10%, similarly adding to his holdings of single-A names.
The manager is 15% underweight Treasuries, neutral corporates, overweight mortgage-backed and asset-backed securities and 5% underweight agencies. Hyken's benchmark is the Lehman Brothers Intermediate Government/Credit Index.
