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| Thomas Plumb |
Wisconsin Capital Management may pick up pharmaceutical credits such as Merck & Co. and Pfizer Inc. if bond spreads widen due to negative headlines. Thomas Plumb, ceo and portfolio manager of the Madison, Wis.,-based investment advisor, manages $540 million in taxable fixed income in balanced and corporate accounts. He said he would consider buying these credits if their spreads to Treasuries widened 25 to 50 basis points more than comparable credits, although he declined to specify how much he would invest. Plumb likes to put money to work in names that weaken due to headline risk. Examples of investment-grade plays Plumb recently made on spread widening include Marsh & McLennan '07s and '09s, which he bought in October when they widened to an average of 275bps over Treasuries.
Another area where Plumb is putting his money to work is in long-term callable preferred certificates, hybrid assets that have bond-like maturity dates. The manager has been putting his money to work in long-term preferreds with coupons more than 7% that are callable within two years and have maturities out to 2032. Plumb said the rate product is the best investment for a moderately rising interest rate environment. "On a yield-to-call basis, you can pick up a percent to a percent and a half spread to Treasuries," Plumb said. Through December the manager had added to his holdings of Citigroup 7 1/8% '28s, callable this February, although he declined to specify how much he had added.
At the same time, Plumb has cut back on mortgage-backed securities. The structured products were added to his portfolios when outside portfolios were rolled into his, bringing the percentage of MBS to 15-20% last month. However, he has already lightened up his holdings of MBS pass-throughs with coupons up to 6% to less than 10%.
The taxable fixed-income portfolio is about a third short its benchmark's duration at three years, with an average maturity of five years. Plumb uses the Lehman Brothers Intermediate Government/Credit Index as his bogey. The portfolios are made up of 15% in preferreds, 24% in government bonds and 61% in corporate bonds.
