Swiss Re Investors, the New York investment arm of the giant Swiss insurer, is looking to add 2-3%, or $640-960 million, in crossover credits to its portfolio on the view that the economy will come back strong this year and productivity and consumer earnings will pick up. Andre Moutenot, the chief portfolio manager who oversees the firm's $32 billion in taxable fixed-income, says management restrictions prevent him from moving further down the credit ladder into true junk territory, or he would do so to pick up additional yield. He says the firm was making the trade last week, and he would not specify names of companies at which the firm is looking.
Swiss Re has also been adding to intermediate-maturity bonds of companies that have been plagued by headlines relating to accounting difficulties or asbestos lawsuits. It added $60-70 million of exposure to Tyco Capital as spreads widened to 350, 425 and 430 basis points over Treasuries in recent weeks. Moutenot says he is confident the company will sell or spin off its financing arm, CIT, and follow through with its plans to pay down debt. He would not be specific about when Swiss Re will take gains if Tyco improves, or when it will bail out if the picture continues to worsen. Other credits Swiss Re has added to take advantage of what Moutenot sees as overreactions by investors include Dow Chemical and several paper and forest product names.
Swiss Re maintains a duration of five to eight years in its corporate portfolio, which is benchmarked against the Lehman Brothers aggregate index. It allocates 60% to investment-grade corporates, 20% to U.S. government securities, 15% to mortgage-backed, asset-backed and CMBS and 5% to high-yield.
