Kris Kowal, managing director of fixed income and portfolio manager of $5.3 billion at DuPont Capital Management, is maintaining his position in General Motors Acceptance Corp. and Ford Credit. "When you look at the current levels of GMAC and Ford Credit they all have good spreads versus other high-yield securities. What worries some people is the default potential, but when you just look at the spreads they have good value," Kowal explained.
Kowal noted that the next few months will loom large as parent companies General Motors and Ford Motor negotiate with labor unions.
Kowal has also recently been reducing his allocation to corporate credit. "We've been overweight credit since 2002 and now there is less valuation. Since credit is quite expensive now, it was the right time to reduce our allocation." His current allocation is 35% government agencies, 30% in mortgages, 26% in corporates, 6% in emerging markets and the rest in U.K. cash.
Kowal is employing a barbell strategy with his investments. "Right now we are underweight investment-grade credits and slightly overweight high yield. Actually, by virtue of our benchmark, when we have any high yield we are overweight. It's not on the Lehman Brothers Aggregate Bond Index," Kowal stated. His duration is 4.5 years and he describes himself as "flat to slightly long."
Kowal states that he does not have much interest in the new issue market. "When we get new cash we are putting it mostly into governments with some going into investment-grade corporates and mortgages. We are trying to maintain our same allocation and just putting new money into those positions, unless of course we see a good opportunity in high yield that is very solid; that we would look into," Kowal added. He describes his overall strategy as a "bottom up" not "top down" strategy. "We look for value all across the spectrum; we don't concern ourselves whether or not paper is long or short," he said.
