Columbia Management Group is looking to add higher-quality names for the junk bond portion of its $1.3 billion Strategic Income Fund, given the recent run up in the prices of lower-quality bonds. Laura Ostrander, senior v.p. and senior portfolio manager in Boston, says the firm will strive to keep more than 40% of the fund in high-yield assets, and plans to overweight cable names and underweight financial ones. She declined to discuss specific credits. High-yield currently accounts for 40%, but the firm will need to be a buyer to keep that level steady as the market is expecting issuers to be active in calling their outstanding high-yield bonds this year and as other bonds mature. And, despite last year's steep gains in high yield, Ostrander says junk bonds still seem attractive. Economic growth, rising commodity prices and a declining dollar normally all point to rising inflation, "but we continue to see it falling and in an environment like this it becomes difficult to trim too much from higher-yielding assets," she explains. Ostrander adds the firm is not planning to make any wholesale strategic shifts in the portfolio, but rather will tweak it by adding or subtracting specific bonds within its existing allocations.
The Strategic Income Fund has 35% of its assets in foreign government paper, including developed and emerging market sovereigns. The remainder of assets are held in U.S. government bonds. Ostrander says she is hoping to add a little juice to the portfolio by maintaining a high allocation to foreign debt and benefiting from currency appreciation. The firm recently reduced its holdings of Australian and New Zealand sovereign credits and ploughed the proceeds into U.K. sovereign debt, which offers higher yields now that the Bank of England has begun to raise interest rates. "That should enable the pound to stay strong," she reasons. In emerging markets, Columbia swapped out of Venezuelan debt and into Panamanian paper due to concern over the unsettled political situation under President Hugo Chavez.
The fund has a duration of 4.4 years, which is slightly short that of its benchmark, the Lehman Brothers Government/ Credit Index.
