Envision Capital Management is looking for split-rated credits in an effort to pick up some yield, said Marilyn Cohen, president and ceo of the $225 million fixed-income fund. "There aren't many things we like right now. Spread-wise, high-yield and corporates are so rich it's unbelievable," she commented, explaining the fund is looking to put money to work in assets that still offer incremental yield.
Cohen noted spreads are wider on credits rated investment grade by one agency and junk by another, which is what makes them appealing. "If I've done my homework, I will be able to pick up some spread if the credit is upgraded," she said. She declined to specify any split-rated credits she finds attractive. While Envision does not normally look for event-driven investments, Cohen added "in the current rich environment, we'll buy credits when they blow up."
Cohen said she currently finds nothing appealing in high-yield, which comprises 20% of her portfolio. In the high-grade arena, Cohen highlighted Wyeth as an attractive credit due to the step-up feature of its coupon whereby upon being downgraded its coupon payment increases. But she added overall healthcare is not appealing to the L.A.-based fund. Cohen noted the fund has been successful in the cable industry, recently by picking up Cox Communications before its spreads tightened.
High-grade credits comprise 40% of the fund. The remainder lies in municipals. Envision's duration is around 3-3.25 years. Cohen plans to keep her duration short and doesn't anticipate changing her allocations in the near term. She does not use a benchmark.
