Missouri Valley Partners will extend its duration to neutral against its index if the recovery shows further signs of faltering. Steven Jones, portfolio manager of $175 million, says that if the S&P 500 index falls below 1000, he would consider bringing duration to a neutral position versus its benchmark, the Lehman Brothers aggregate index. Last Tuesday, the S&P 500 was at 1083. At 4.26 years as of last Tuesday, Missouri Valley Partners was 5% short the 4.49-years of its bogey. Other indications Jones would consider before adding duration are continued weakness in the economies of Europe and Japan, and flat consumer spending after inventories are replaced. In making these determinations, he will rely largely on the view of Ed Hyman, economist at ISI Group. To add duration, Missouri Valley would buy 10- to 30-year Treasuries and sell Treasury bonds of shorter duration.
In a recovery scenario, Jones likes the Disney 6.75% notes of '06 (A3/A-). He believes Disney will be able to steer clear of accounting troubles and should benefit if the economy turns. At a spread of 120 basis points over five-year Treasuries, Jones says the Disney paper is more attractive on a yield basis than another single-A credit, the May Department Stores 6.875% notes of '05. The May paper offers only an 80 basis point spread. Jones says he will buy the Disney bonds if he sees them offered at 115 basis points over the curve.
The St. Louis, Mo. manager allocates 43% to mortgage-backed securities, 43% to corporates, 12% to Treasuries and 2% to cash.
