Groupama Asset Management is rotating 15% of its portfolio, or $15 million, from Treasuries into corporates as the firm anticipates an economic rebound and better corporate earnings. Dan Portanova, portfolio manager at the New York-based firm, says the move is duration neutral, as it is selling Treasuries with a comparable duration to the corporates it is buying. He adds that he predicts the yield curve will steepen over the next few months, given what he is calling the end of the government bond rally.
Portanova points to the Citigroup 6.50% notes of '05 (Aa1/AA-) as an example of the corporate bonds the firm is interested in buying. Last Monday, the bonds traded 206 basis points over comparable Treasuries. Portanova likes Citigroup bonds because the bank is well diversified and because it should benefit from a steeper Treasury curve. Another name being looked at is Alcoa, a cyclical that Portanova sees benefiting from an economic rebound. The manager will seek to buy the Alcoa 7.25% notes of '05 (A1/A+) which traded last Monday at an 85 basis point spread to the five-year Treasury.
The firm has a $100 million portfolio, with an asset allocation of 50% Treasuries, 35% corporates, 10% cash, 2.5% collateralized mortgage obligations and 2.5% ABS. With a 3.0-year duration, the fund is short its benchmark, the Lehman Brothers investment/government credit index, which has a duration of 3.75 years.
