The Evangelical Lutheran Church in America (ELCA) Board of Pensions is looking for an opportunity to add some $35 million to the banking and industrial sectors. The board's portfolio has a marginal underweight to those sectors, and Mark Haney, senior investment manager responsible for $900 million in taxable fixed-income, would like to move that position closer to neutral. However, Haney believes the sectors are extremely rich when compared to their historical norms, and he would like to see spreads back up a bit before he invests.
In the banking sector, names he could add include J.P. Morgan Chase, Bank One and Wachovia Corp. J.P. Morgan's 53Ž4% notes of '13 (A2/A) were trading at 98 basis points over Treasuries last Monday. Haney says he would like to see them trade some 15-20 basis points wider before picking them up. ELCA's board recently bought $1 million of The Royal Bank of Scotland 4.7% notes of '12 (Aa3/A), which priced on June 26 at 120 basis points over Treasuries. Haney says the board needed to fill a Yankee bank bucket in its portfolio, and the RBS paper came at a concession to U.S. banking names. He is not looking to add further exposure to Yankees, however.
ConocoPhillips is one benchmark industrial name in which the board could add exposure. The 43Ž4% notes of '12 (A3/A-) were trading at 51 basis points over Treasuries last Monday. Haney says he would like to see Conoco or other comparable industrial names widen 15-20 basis points to the rest of the market before investing.
At a duration of 3.9 years, the Minneapolis-based board is neutral versus its bogey, the Citigroup Broad Investment-Grade index. In its active portfolios, it allocates 40% to mortgage backed securities, 30% each to corporates and U.S. Treasuries/governments.
