Winterthur Investment Management is looking to shift some $100 million in its corporate bond portfolio as it moves down in credit quality in a bid to pick up additional yield. Reto Koller, portfolio of $2.5 billion at the affiliate of the Swiss insurer, says the firm has been adding credit risk to its portfolio over the last 12 months, and has accelerated that process over the last four months as the economy appears to be on the mend. He says Winterthur is looking for 3-4% growth over the next three to five quarters as geopolitical worries appear to be abating and business investment looks to have bottomed.
Winterthur will focus largely on the new issue market in looking for yield, as secondaries have already been picked over to a great extent, Koller says. In looking to bring credit risk to an average rating of single-A, the firm will look to cyclical industries, such as brokers, auto, paper and chemical manufacturers. One recent new issue it bought was $15 million of the BHP Finance USA 4.8% notes of '13 (A2/A). The issue priced at 80 basis points over Treasuries.
Koller says the firm will lean toward issues from brokerage firms first, as it is still not fully allocated to that sector, which should rebound as the stock market improves. The firm could still add some $20-40 million in three- to 10-year maturities. Koller says he does not necessarily favor one brokerage firm over another, but will buy whatever looks cheap relative to the rest of the market.
Winterthur will trade out of tighter-trading corporates to raise money for the purchase. One example of a sale candidate is Wells Fargo. The 6.125% notes of '12 (Aa2/A+) were trading at a spread of 68 basis points over Treasuries last Monday.
At a duration of 3.8 years, the New York-based firm is roughly neutral to its bogey, the Salomon Smith Barney Government Agency Credit 1-10 Year Index. It allocates 40% to Treasuries, 40% to corporates 15% to agency debentures and 5% to asset-backed securities.
