Ziegler Investment Services Group will swap $70 million, or 10% of its overall portfolio, from Treasuries into corporates, on the view that corporate spreads should eventually begin to tighten, forcing Treasuries to underperform, according to portfolio manager Brian Andrew. Andrew says he is anticipating an economic recovery in the last quarter, which is why he's seeking to commence his rotation immediately. He says that he will concentrate his purchases on the five- to seven-year sectors because he expects yields to rise on 10-year and longer maturities, as the intermediate range should remain stable or tighter.
As Andrew anticipates that the path to recovery will be slow, one of the ways he intends to hedge against yield volatility is to invest in cyclical corporate bonds. He says he owns the Coca-Cola 6.62% '04 (Aa3/A+) but declined to specify whether he intends to buy more of it. On the other hand, he owns, and is planning to add to his position in, Procter & Gamble 6.87% '09 (Aa2/AA), which traded at 105.27 last Monday.
The Milwaukee-based $700 million portfolio has an asset allocation of 56% Treasuries, 15% corporates, 14% agencies, 10% ABS and 5% MBS. With a 3.10-year duration, the fund is neutral to its benchmark, the Lehman Brothers intermediate Government corporate index, whose duration is also 3.10-years.
