Pitcairn Trust is in the process of executing a swap out of ABS and agencies and into investment-grade corporates on a credit-by-credit basis, to capture additional spread. Patrick Kennedy, portfolio manager for $200 million in taxable fixed-income, expects another strong year out of ABS and agencies, but believes he can pick up extra spread by swapping into corporates whose spreads he expects to tighten.
Kennedy does not have a target for how much in corporates he will add. He says some quality corporate bonds that have suffered spread-widening could begin to rebound in the second quarter, as the effects of the downward trend in long-term interest rates take hold.
Kennedy will first look to double-A rated names, and, as corporate earnings improve, examine triple-B credits. His moves are usually $10-20 million in size. He'll examine such sectors as energy and insurance, both of which offer relatively stable cash flows, while avoiding autos and the bank sector, where he still sees the ill effects of bad loans. The portfolio of the Jenkintown, Pa.-based firm is allocated 32% to corporates, 20% to ABS, 20% to agencies, 16% to Treasuries, 6% to CMOs and 6% to cash. Duration is 98% that of the portfolio's benchmark, the 4.59-year Lehman Brothers Government/Credit Index.
