In a relative value play, Westwood Management Corp has been selling agencies to add another 8% in high-grade corporates in the financial and auto sectors, and upped its allocation of Yankee bonds by about 7%. Mark Freeman, who manages $500 million for the Dallas-based firm, characterizes the nearly completed strategy as a defensive one prompted by spread tightening. He is buying single-A or better corporates, and recently bought Citigroup's 4% notes of '05 (A2/A) and GMAC's 4% notes of '05. Freeman, who is overweight Yankees by about 2%, is diversifying out of the U.S. as growth slows. He especially likes European sovereigns, particularly Italy. The country has made headway with its deficit reduction and gross domestic product numbers recently came in higher than expected.
Westwood Management is also selling $25 million worth of long Treasury bonds to buy intermediates on the view the yield curve will steepen in the next six months as the Federal Reserve eases 50 basis points in March. In addition to Yankees, the firm's Treasury allocation of 46% is overweight its bogey, the Lehman Brothers Government Credit Index, by about 4%. The firm is underweight agencies and corporates with an allocation of 15% and 28%, respectively, and has a 4% exposure to mortgages.
