Federal Reserve Board easing, coupled with the rich valuations of mortgage-backed securities, has led Delaware Investments to shift into the corporate sector, according to portfolio manager Stephen Cianci. The Philadelphia-based fund has recently purchased over $400 million in corporate bonds, primarily in the single-A to BBB sector, on the view that the Fed's easing is creating a positive environment for credit products. Cianci characterizes his choices as heavily yield driven, with an average yield of 7%. He favors the energy and telecom sectors, because of the high-yield potential contained in these industries, but declined to give further details on corporate holdings.
In order to increase corporate allocation by approximately 13%, Cianci sold approximately $400 million in conventional MBS on the view that mortgages are priced too richly in this prepay environment. In addition, he sold over $100 million worth of longer maturities.
The current asset allocation is 35% in corporate, 28% in MBS, 10% in Treasuries, 10% in agencies, 10% in ABS and 7% in CMBS. The $4 billion portfolio is neutral towards its bogey, the Lehman Brothers Aggregate, whose present duration is 4.6 years.
