Fischer, Francis,Trees & Watts may cut back on its retail holdings, which include bonds of Safeway, CVS and May Department Stores. Portfolio manager Sai Choy said he will look to take profits in these names if they rally by 10 basis points. May Department Stores' '09s were trading at 95bps over Treasuries last week. Choy manages 100 portfolios worth $40 billion.
FFTW might also look into buying new issues from utility companies, which Choy said are offering attractive yields. The manager plans to stay overweight in finance because of expectations for stable revenue for companies in the sectors.
FFTW compares its portfolios against a variety of benchmarks, including the Lehman Brothers Global Aggregate, the Lehman Aggregate, and the J.P. Morgan Government Bond Index. Choy said the manager measures its sector allocations in terms of their contribution to duration. Using this lens, FFTW is one month overweight the Lehman index in utilities and two months overweight in telecoms.
Whether the manager participates in future transactions depends on the quality of companies coming to market and pricing levels, Choy said. "We passed on Home Depot, which is a strong credit with strong fundamentals, but the pricing was not attractive enough," he said. At a spread of 48bps, the '09, double-A bonds were too rich, but he might have considered buying them if they had been five basis points cheaper. "Something like that is too high quality from our standpoint," he noted, comparing it to '09 Bell South bonds that he bought a couple of weeks ago at an 80bps spread. The bonds have since traded up 10bps.
