Ryan Labs will focus on investments in corporate bonds, specifically in finance companies, and mortgage-backed securities as it looks to provide yield in the short- to intermediate-part of its portfolio. Mike Donelan, portfolio manager of the $18 billion investment-grade fixed-income fund in New York, said the firm is focusing on finance paper, particularly brokers. "We think they're way too cheap right now, because of fears of serious interest-rate cycles," he explained, noting that he particularly likes the bonds of Goldman Sachs, Morgan Stanley and Merrill Lynch. On a more conservative bent, Donelan stated he likes the food and beverage and chemical sectors essentially for diversification purposes. He said Ryan Labs is involved with DuPont Co. for both fundamental and technical reasons and that the primary cycle in chemicals has improved.
Donelan added that he is conservative right now, but will look to add securities in September or October. "The third quarter will probably present good opportunities as far as spreads go. Volatility issues in equity are very low and whenever that does reverse, it will affect the riskier components of the market, so the riskier the investment the better," he said.
Ryan Labs is currently long in two- and 10-year credits but, should it perceive a market rally, it will allocate more of its capital to five-year notes and shift from a barbell position back to neutral, said Donelan. "If the market rallies, the five-year note should outperform as it is the driving vehicle of the market," he explained. Ryan Labs uses the Lehman Brothers Aggregate and the Lehman Brothers Government International indices. It is, and will remain, duration neutral to its benchmark. Relative to the Aggregate, it is currently overweight corporates, neutral mortgages and overweight asset-backed securities. Donelan noted that ABS has cheapened and offers good relative value. In governments, the fund is overweight Treasuries and agencies.
