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| Nate Kehm |
Federated Investment Management finds credits in the industrials and gaming sectors attractive, said Nate Kehm, portfolio manager of the $5 billion high-yield fund in Pittsburgh. He explained the manager is overweight its benchmark, the Lehman Brothers High-Yield Index, in those areas because it likes a number of specific names and because of a broader sector call. "We like some of the smaller industrial deals in the lower single-B category. Our positive outlook on the economy makes industrials attractive," added Kehm, highlighting Neenah Foundry as one credit he likes. In gaming, Federated thinks some of the large sizable players generating good free cash flow have offered good risk-adjusted return. He declined to highlight any more names or quantify his overweights.
Federated's biggest underweights are in electrical generation because there are a few big issuers that it does not hold in its portfolio. Kehm is also underweight airlines because he is not fond of the sector's business models. The manager is underweight financials because none of the issuers in the sector meet his investment criteria.
Federated's duration is overall short its index, but takes a two-component approach to duration. Kehm said in situations like AT&T Corp. and the Big Three in the autos, where he is buying as much spread as possible, he will lengthen duration. But in areas such as food, beverage and gaming where names trade tight, he will keep duration short. Kehm is looking to put new cash to work in the new issue market.
