Groupama Asset Management will look to shift up to $30 million in assets from double-A rated corporate bonds to single-A rated credits in a bid to add yield. Dan Portanova, portfolio manager overseeing $150 million in taxable fixed-income at the New York firm, says he wants to see improved business spending, which he believes will come when there is more clarity regarding crises in Iraq and North Korea. Once business spending picks up, Groupama will likely commit $15 million to lower-rated credits, Portanova says. If geopolitical tensions were to show even greater signs of resolution and the economy responded accordingly, Groupama would invest another $15 million, he says.
Credits Groupama would probably sell include the Wal-Mart Stores 6.875% notes of '09 (Aa2/AA), which were trading at 50 basis points over Treasuries last Monday, and the DuPont 6.875% notes of '09 (Aa3/AA-), which were at 60 over the curve. "These are real high quality names that have held up well relative to other credits, but as the economy improves relative performance comes from further down the credit spectrum, so it makes sense to go down in quality a bit," Portanova says.
Other sale candidates are the Citigroup 6.75% notes of '05 (Aa2/A+), which were trading at 60 basis points over Treasuries. Portanova says Citi's performance is tied to the equity market, and Groupama already owns several other investment banking credits that perform relatively similarly.
Issues Groupama might look to add include the Alcoa 6.5% notes of '11 (A2/A) which were trading at 85 basis points over the 10-year note last Monday, and the Hewlett-Packard Co. 7.65% notes of '05 (A3/A-), which were 100 basis points over the curve.
At a duration of 3.5 years, the New York-based firm is just short of its bogey, the 3.6-year Lehman Brothers intermediate government/credit index. It allocates two-thirds of its assets to corporates and one-third to Treasuries.
