The Evangelical Lutheran Church in America Board of Pensions is seeking to reduce risk and add yield to its $900 million investment-grade fixed-income fund, said Mark Haney, senior investment manager in Minneapolis. To do so, the fund manager plans to reduce its agency and asset-backed positions to bring it back to neutral versus its benchmark, which is derived from the Citigroup Broad Investment-Grade Index. "We are reducing risk and adding yield by looking at the larger issuers in the index where we are short and will add some of those to get back to neutral," he stated.
Specifically, Haney noted the additions would include some of the autos, broker-dealers and banks including Ford Motor, DaimlerChrysler, General Motors,Morgan Stanley, Goldman Sachs, J.P. Morgan and Merrill Lynch. These additions are not a reflection of a credit opinion but of the portfolio's index, he stated. With regards to sectors, Haney said he doesn't like much of anything. "We're only looking at name-specific opportunities; now is not a time to buy or sell the market," he added. Haney highlighted that he will stay away from low-growth, high cash-flow businesses and sectors that have been affected by leveraged buyout activity such as cable and media.
The fund is currently allocated 25% in Treasuries and governments, 40% in mortgages, 5% in asset-backed securities and 30% to corporates. The positions are essentially neutral to the fund's benchmark. Haney said it is slightly underweight corporates because he doesn't think their valuations are attractive. The fund's duration is 4.75 years, which is on top of its benchmark. The fund will stay invested, its cash levels are modest and it will put new cash to work in its index. "It's a boring strategy, which reflects my negativity toward the economy and valuations," stated Haney, noting that he expects to see inertia in the market going forward. He added that the outcome of the election won't impact the market but its heated nature contributes to the current inertia.
