Thrivent Financial For Lutherans plans to add up to $70 million in double-B credits to bring its allocation from underweight to neutral, on expectations double-Bs will outperform after recent spread widening. Paul Ocenasek, portfolio manager of a roughly $3 billion Minneapolis-based high-yield fund, intends to add 3 1/2 to 4% in double-B names for the $1.75 billion in mutual fund accounts he manages to a Lipper peer group.
"When you have a sharp correction, double-Bs tend to lead the market," Ocenasek explained. He would like to add names in the gaming and healthcare space as he is gravitating toward defensive industries.
Thrivent has had a bulleted credit quality allocation in place with an overweight in single-B names. Ocenasek said he had underweighted double-Bs because they are more rate-sensitive though they did not underperform the market. "We underweighted triple-Cs because we thought the market was overvalued and that part of the trade worked," he added.
Ocenasek is underweight autos, with a 1 1/2% allocation versus the peer group's 2 3/4%. "We had very little exposure before the General Motors downgrade because of the operating characteristics of the autos," he noted. However, the manager recently added Delphi Corp. one-year paper with a 12% yield-to-maturity. "We are picking spots in recently beaten-down industries to take advantage of spread widening," he explained. The GM and Ford Motor Co. downgrades don't immediately alter his strategy but he said he is currently deciding whether to step in and pick up the names.
With regards to his sector allocations, Ocenasek said, "it's more of a game of avoiding the bad industries." He is currently neutral the gaming and healthcare sectors, but is looking to increase his allocations there as they are stable industries. He is also less than half his peer group's weighting in airlines, with an around 40 basis points allocation as he thinks more defaults are likely in the industry.
