Evergreen Investment Management, a Boston-based subsidiary of First Union Bank's capital markets arm, is watching for a continued rally in commodity prices as it prepares to increase exposure in low-rated, zero coupon, deferred interest bonds. Prescott Crocker, senior portfolio manager responsible for $1.2 billion in taxable fixed-income, says he will look to invest some $100 million to in seven- to 10-year paper offered by wireless telecom companies. Names he likes include wireless companies like Nextel (B2/B), Tritel (B3/NR), and Triton (B3/CCC+) because they have less competition, and more opportunities to attract new subscribers.
Crocker plans on executing the program if theGoldman Sachs Commodity Index rises to 238 from its current level of 225, which he expects will happen by May 9. Improving commodity prices and inflation create the best environment for high yield debt, he argues, which he believes anticipates economic recovery well before it starts. He says a similar pattern preceded the recession that hit in June 1990. Crocker notes that markets have a propensity to look through recession to a recovery, continuing that "by the time we're hearing about a recession in the media, the price recovery of cyclical companies and high-risk corporates will already have been underway."
Crocker currently allocates 70% of his assets to U.S. high yield corporates, 15% to foreign treasuries, and 15% to U.S. treasuries. At 4.22 years, he is duration neutral to his J.P. Morgan Chase High Yield index benchmark.
