Fifth/Third Investment Advisors, is looking to add up to $360 million in higher quality corporate, mortgage pass-through and asset-backed bonds. It will sell Treasuries and agencies to fund the moves. Mitch Stapley, who oversees the money manager's $3 billion taxable fixed-income portfolio, says he is still not convinced that companies with lower credit ratings will be able to benefit from what may be an "earnings-challenged" recovery. Among corporate names, Fifth/Third is particularly eager to see further issuance from GE Capital. It bought a piece of last month's record-breaking issue, the 6.75% notes of '32, bringing its overall holdings in the name to roughly $45 million. Stapley says he would add up to $30 million more in the five- to 10-year range if GE continues to issue bonds to pay down commercial paper exposure, as is widely expected. That issue came at 109 basis points over Treasuries and had widened to 153 basis points over the curve as of last Monday. Stapley says he believes the company is fundamentally sound, and that spreads will recover from recent investor jitters over its reliance on commercial paper.
Fifth/Third will also look to add up to $150 million in mortgage-backed securities pass-throughs. Stapley says the firm will likely add 15-year product in 6.5% and 7.5% coupons, as they are at the cheapest part of the curve. The firm will pull the trigger, he says, if option-adjusted spreads back up to 140 basis points over Treasuries. Last Monday, they were 110 basis points over the curve.
The firm will also add up to $75 million in asset-backed deals. Stapley says he prefers securities using credit card or auto loans as collateral because they are more liquid than home equity or manufactured housing.
At a duration of 3.85 years, the Grand Rapids, Mich., money manager is slightly long its bogey, the 3.69-year Lehman Brothers Intermediate Government Corporate index. Fifth/Third allocates 46.5% of its assets to corporates, 22% to agencies, 10% to MBS, 10% to Treasuries, 7.5% to ABS and 4% to cash.
