Some fixed-income investors are increasing their allocations to cash given the current low bond yields. The managers anticipate a back-up in yields, at which time they will reinvest in the market. Calvert Asset Management and Bank Leumi USA are among the accounts that are holding large cash allocations and are waiting for more-attractive buying opportunities. Meanwhile, the Texas Permanent School Fund has nearly halved its allocation to bonds. Greg Habeeb, portfolio manager at Calvert in Bethesda, Md., said he holds 10%, or $380 million of his $3.8 billion taxable fixed-income portfolio in cash. It is a move, he said, that only works if rates back up this year, not next year.
The search for yield has led Carlos Veintemillas, investment-grade portfolio manager at the Texas Permanent School Fund in Austin, to increase his wager on the equity market. He said he recently liquidated $1.5 billion in fixed-income investments because yields are at historically low levels. He expects yields to rise, but in the meantime, said he has reduced his fixed-income allocation to 25% from 45% of his fund by selling corporates, agencies and callable Treasuries and putting the proceeds into equities, because the fund is required to stay fully invested.
Robert Giordano, investment-grade portfolio manager of $2.5 billion at Bank Leumi in New York, said he has also increased his cash position of late and noted that investors are willing to stay on the sidelines and give up carry and yield now to protect themselves for a rise in yields later.
