Groupama Asset Management is looking to increase its corporate allocation, and is warily eyeing financial credits. Dan Portanova, portfolio manager of $150 million, believes the economy will recover eventually, but says it is still vulnerable to exogenous shocks. As a result, he wants to see another month of data to be sure that unemployment is truly falling, before becoming more aggressive. Assuming that the futures market was correct last Monday in betting on a year-end Fed funds rate of 2.25-2.50%, Portanova will have upped Groupama's corporate exposure by 10% by that time. Groupama will sell U.S. government securities to raise the necessary funds. Names Groupama will look to add include Wells Fargo, whose 6.125% notes of '12 (Aa2/A+) were trading at 89 basis points over Treasuries last Monday. Portanova says he will probably look to add either the five- or 10-year maturity sectors, and was considering buying the bonds last Monday. Portanova likes Wells Fargo in part because its mortgage business is still strong due to a resilient consumer and housing market.
Other financial names Groupama may add in the five- to 10-year range are Bank of America and Citigroup, because they are widely diversified and should benefit from a global recovery next year. They should also outperform if the brokerage industry recovers from recent woes, says Portanova. Bank of America's 6% notes of '12 (Aa2/A+) were trading at 90 basis points over Treasuries last week. Citigroup's 6% notes of '12 (Aa1/AA-) were 85 basis points wide of the curve.
At a duration of 3.3 years, the New York-based asset manager is roughly 10% short its bogie, the 3.7-year Lehman Brothers Intermediate Government/Credit Index. It allocates 43% to corporates, 43% to U.S. government securities, 6% to mortgage-backed securities, 5% to asset-backed securities and 3% to cash.
