Advance Capital Management (ACM) has begun scaling back its high-yield exposure, and will move some $10 million into lower-yielding, but less volatile instruments, such as 15-year agency debentures, which are non-callable for three months. Chris Kostiz, portfolio manager of $700 million in taxable fixed-income, says the risk/reward profile of high-yield has become less attractive, as the asset class has made sizeable gains since last Fall. ACM will then look to return the assets to high-yield if the market cools off, Kostiz says.
High-yield issues ACM will look to sell include the Flextronics 9.875% notes of '10, which was bid at 111 last Monday, and the American Axle 9.75% notes of '09. The firm recently sold its HCA Inc. 8.75% notes of '10. While the high dollar price is one important reason for the sale, Kostiz also has some credit-specific concerns. In the case of American Axle, for example, he worries that the auto supplier may suffer along with the struggling auto industry, despite the fact that it has a solid contract with General Motors.
In addition to lightening up in high-yield, ACM is winding up its move out of Ginnie Mae pass throughs--a program it started last Fall as paydowns appeared to have run their course. The firm recently sold some $5 million of the securities to buy high-grade corporates, and pick up a bit of extra yield.
The $200 million Advance Capital I Retirement Income Fund has a duration of 7.5-years, and usually maintains duration between 7.5-8 years. It allocates 70% of its assets to high-grade corporates, 25% to high-yield, and 5% to a combination of Ginnie Mae pass-throughs and agency debentures.
