Chandler Asset Management, a $1.2 billion San Diego-based money manager, plans to sell some $120 million in U.S. agencies and possibly some double- and triple-A rated corporates in favor of slightly lower-rated financial paper. Portfolio manager Martin Cassell says that as the economic picture slowly improves, he will look to pick up some yield on names that have been beaten up as of late. Though many managers have already begun to move down the credit ladder, Cassell says he wants clear indications of a turnaround before implementing his strategy. He is looking for signs such as a stabilization in jobless claims and for spreads on two- to 10-year treasuries to widen to about 140 basis points before beginning a gradual shift down the ladder over a period of a month or two. As of Tuesday last week, this spread was 121 basis points.
Cassell favors Countrywide Credit (A3/A), which he says has been beaten up due to talk of a potential merger. He also expressed interest in First Union (A1/A), which has been acquisitive of late, creating pressure on spreads and a buying opportunity, as well as Bank One (Aa3/A). He did not indicate which individuals bonds he was interested in.
Chandler currently allocates 54% to mostly non-callable agencies, 25% to treasuries, 20% to corporates, and 1% to cash. At an average duration of 3.7-years for the firm's intermediate accounts, Chandler is slightly long its 3.55-year Merrill Lynch U.S. Corporate Government 1-10 year index. Cassell says the firm tends to keep close to its benchmark and avoid duration plays as a rule.
