Wright Investors Service plans to add incrementally high-quality paper that appears cheap as part of its effort to maintain its overweight allocation to investment-grade corporates. Anthony van Daalen, senior v.p. of fixed income, says the Milford, Conn., manager of roughly $1.25 billion in taxable fixed income also plans to increase its duration slightly, to bring it closer in line with its benchmark.
The money manager is on the lookout to buy bonds that offer incremental yield over Treasuries and appear to trade five or 10 basis points wider than where they should, he notes. For example, Wright recently participated in National Rural Utilities Cooperative's four-year bond offering, which was priced at 72 basis points over Treasuries. He says this was about a seven basis point discount to where the bond should have sold. "It's not a barn burner, but it's something we feel comfortable with," he explains, noting Wright is looking for undervalued bonds across high-grade sectors. "The game is shifting away from the big sector bets toward more security selection," he adds. Wright currently has a roughly 5% overweight in corporates, which account for 28% of the Lehman Brothers aggregate bond index.
On the duration side, van Daalen says Wright looks to buy Treasuries to increase its average life. The index is 4.55 years and the accounts have an average duration of roughly 4.15. Van Daalen plans to bring the portfolio's duration up to roughly 4.35 years by purchasing longer-dated Treasuries.
