Wilbanks, Smith & Thomas Asset Management is looking to add four- to five-year corporates at the low end of the investment-grade spectrum, potentially boosting corporate allocation by about $14 million, from 23% to 28% of its $275 taxable fixed-income portfolio. "We're making a bet that the economy bottoms out in June," says Wayne Wilbanks, cio. He expects the Federal Reserve to cut rates at its January and February meetings, helping companies such as DaimlerChrysler and General Motors Acceptance Corp. to post higher profits. Wilbanks notes that despite the automakers' ability to still deliver earnings-per-share of $2-3 in 2002, Daimler's five-year paper currently trades at about 220 basis points over Treasuries and GMAC's four-year is at 185 over.
In addition to the auto sector, Wilbanks is also beginning to evaluate telecom credits, citing four-year Tele-Communications, Inc. (now AT&T) paper at 210 basis points over Treasuries, as well as AT&T 5-year at 205 over. He currently considers a spread of less than 180 basis points on corporates inadequate compensation. Wilbanks says any purchases would be funded by the sale of two- to three-year Treasuries, which he believes are especially rich compared to agencies and corporates.
The portfolio of the Norfolk, Va.-based firm's portfolio is allocated 38% to Treasuries, 34% to agencies, 23% to corporates and 5% to cash. Duration is 3.8 years, slightly long its benchmark, the 3.50-year Lehman Brothers Intermediate Government/Credit Index.
