James Investment Research, a manager of individually managed portfolios in Alpha, Ohio, is preparing to extend duration by half a year to one year on the view that the economy will not begin to pick up for another six to 12 months. Tom Mangan, portfolio manager of $300 million in taxable fixed-income, says he is concerned about the effect the high levels of corporate and individual debt, problems in Argentina, a slowing economy in Germany and a recession in Singapore will have on the U.S. economy. He says that if weekly jobless claims totals stay above 400,000 this week and next, he will extend duration on the view that the Federal Reserve will cut rates by more than the 25 basis points the market currently anticipates. Mangan says James will extend duration by selling callable agencies and short-term Treasuries to buy 10- to 30-year Treasuries, non-callable agencies and high-grade, non-callable corporate paper. Mangan says that at 3.66 years most of James' portfolios are exactly neutral to the Lehman Brothers Intermediate Government Credit Index.
Mangan says James will consider new issues in sectors such as oil and gas, basic materials and large, stable technology companies such as IBM. He says he likes new issues because there is no bid/ask spread, and the market has usually stabilized by the time a new issue sells, so there is no significant risk of immediate losses. He says what issues the firm purchases often depends on whether it can get the allocation it requests. If that proves difficult, the firm will shift into long-term Treasuries, and swap into new issues at a later date. He would not discuss what specific issues he likes. James allocates 33.3% to corporates, 33.3% to U.S. Treasuries, 23.3% to U.S. agencies and 10.1% to mortgage-backed securities.
