The Kansas City Life Insurance Company in Kansas City, Missouri, is looking to add up to $50 million in healthcare debt. Scott Stone, head of the firm's $2.2 billion taxable fixed income portfolio, says congressional cutbacks to Medicare over the last three years bankrupted several healthcare providers, but the survivors of the cuts have come back stronger. That, combined with an aging baby-boomer population, makes healthcare look like a promising sector, and he'll be looking to buy high-rated junk to investment grade debt. Stone declines to discuss specific companies or credits, and says that his sector shifts are typically no more than a few million dollars in size. He declined to specify what would trigger his move, or why it will be bigger than previous reallocations.
Stone may also sell between $10 and $20 million in investment grade retail industry paper, as he feels consumer spending, which has held up well so far, will begin to decline. He also characterizes himself as "a better seller than a buyer" of broker/dealer debt, where he currently allocates some $50 million. In the telecom sector, he may look to increase investments in "baby bells," which he feels have a stable cash flow base from which they can expand into wireless and internet-based products. He is bearish, however on long-distance companies, which he says have been invaded by outside interests and have no stable revenue stream to draw from.
Currently, Stone allocates some 69% to corporate, largely investment grade, debt. He has 20% in mortgage backed paper, 2% percent in treasuries and agencies, and most of the rest in cash, international debt, and taxable munis. His duration is approximately 4.5 years, and doesn't vary much over time. He says he is looking to create a custom benchmark closely linked to his funding costs and more reflective of insurance industry practices than the Merrill Lynch indexes he has been using.
