Brandywine Asset Management has recently sold 4% of its portfolios' Canadian bonds and has been buying Australian agency bonds, on the view that the U.S. dollar will suffer a 20% decrease against the Australian currency. Stephen Smith, a portfolio manager of a $1.2 billion global bond fund, says the firm's entire agency allocation, $170 million, is now in Australian agency bonds.
Smith says the Australian economy is driven by a high demand for coal, which has recently spiked in price and which represents 17% of the country's exports. He argues this spike will bolster the currency against the U.S. dollar. Additionally, he sees the conditions in the European corporate debt market changing for the better, due to the expanded role played by Wall Street underwriters in providing liquidity. He foresees the dollar weakening 10% against the euro, to which he points as the reason he reallocated $500 million to eurobonds, starting in January.
Smith's next move will be to sell a portion of his CMO position, especially in inverse floaters, as well as TIPS, to acquire more corporate paper. He declines to specify how much he will reallocate. Using this strategy, Smith recently purchased $40 million of the Provident corp. (formerly Unum Corp.) 71Ž4% notes of '28 (Baa1/A-), and he finds the bond's wide spreads relative to credit ratings attractive. Smith likes the telecom sector, and is planning a move, but wouldn't disclose specifics as to what issuers he is interested in.
The Wilmington, Del.-based firm's asset allocation is 85% global and 15% U.S. Its international allocation is 50% Europe, 15% Australia, 10% Canada, 5% New Zealand, and 5% in Sweden. Its $180 million U.S. portion is 33% CMOs (all inverted floaters), 33% in Treasury, and 34% in corporates. Overall, the portfolio includes 70% governments, 15% agencies and 15% corporates.
