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| Andrew Harding |
Armada Funds last week raised its duration to neutral from underweight on the view Treasuries will remain range-bound in the coming months. Andrew Harding, senior director of more than $6 billion in taxable fixed-income investments in Cleveland, said he expects yields on the benchmark 10-year will rise only gradually even amid a rising-rate environment. "We've been short and we've been long, about given the shape of the curve, we don't feel this is a good time [to be short]," Harding said. The average duration of the $1 billion Armada runs against the Lehman Brothers Aggregate Bond Index is about 4.4 years.
Still, Harding characterizes his position as defensive. "We think security selection will be much more important this year than it was in the last two years," he said.
Harding is particularly concerned about companies with sizable cash positions because of the risk they could use that cash in a manner, such as a dividend payment, that would be negative from a credit perspective. "We're going to keep on those with shareholder-friendly activities," he said, noting the risk is on a company-by-company basis but declining to be more specific. In terms of sectors, he expects average credit quality among telecom, media and cable companies to decrease in the long term. "There's going to be some competition that will require some greater risk taking," he explained.
Armada manages accounts to a variety of styles but in those relative to the Lehman Aggregate, it is slightly overweight mortgage-backed securities, which Harding said offer more excess spread than other holdings. It is underweight corporates and agencies and also holds commercial mortgage-backeds and asset-backeds. Still, value is hard to come by. "From a macro standpoint, nothing is so cheap that you have to buy it," he noted.
