William Blair Investment Management, a manager of $2 billion in taxable fixed-income, is planning to reduce its overweight exposure to investment-grade corporates and plough the proceeds into mortgage- and asset-backed bonds.Chris Vincent, head of fixed income in Chicago, says prospects for further tightening in corporate bonds appear minimal. The manager is preparing to sell about 5% of its corporate exposure in its $100 million core composite portfolio and increase its allocation to structured bonds by a like amount. "We've had a big rally in corporate spreads over the last four months and the next move is to reduce corporates and take the overweight off," Vincent explains.
Specifically, William Blair will sell part on its 40% corporate allocation, bringing its structured product allocation to 45%. The buy-sider will be taking profits on names such asCox Communications, Comcast Corp. and AOL TimeWarner. Vincent said he bought 10-year Cox bonds late last year at 365 basis points over Treasuries and they have since narrowed to 120 over. "There was a serious mispricing of risk premiums, but we think the marketplace is transitioning toward lower levels of volatility," Vincent notes, explaining why he will sell in the coming months. He will invest the proceeds of these sales, as well as using new cash, and buy short collateralized mortgage obligations and asset-backed securities, upping the portfolio's allocation to structured bonds.
Vincent also believes technicals in the corporate market are favorable, since many issuers have already tapped the market and with the prospect of a slow summer looming. As a result, he is also planning to put some new cash into select corporate names in cable and telecom.
Treasuries and agencies account for 15% of the portfolio, with cash accounting for the remaining 5%.
