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Iowa Buyer Looks For Short Corps, Asset-Backeds

Principal Global Investors is looking to buy $6 million of short-term corporates, inflation-protected corporates and floating-rate asset-backeds, to take on more short-term bonds in the face of higher interest rates.

Marty Schafer
Principal Global Investors is looking to buy $6 million of short-term corporates, inflation-protected corporates and floating-rate asset-backeds, to take on more short-term bonds in the face of higher interest rates. Marty Schafer, portfolio manager of the $120 million Limited Term Bond Fund in Des Moines, Iowa, is planning to add short paper from the auto and energy sectors because they appear cheap. Schafer adds these bonds are 'money good' and offer low risk. He is also planning to add the latest two securitizations from student loan lender Sallie Mae. Overall, the moves will push the fund's allocations to corporates and ABS by about 2% higher apiece. Schafer will use new cash and money from the sale of the fund's 26% allocation to agencies, which was 29% at the beginning of the year, to finance the purchase of additional corporates and asset-backeds. Schafer's view is that interest rates will start to move up and he wants to own more securities that are less susceptible to rising rates.

The fund's allocations include about 40% to corporates, 17% to asset-backed securities, 10% to commercial mortgage-backeds and 7.5% to mortgage-backed securities.

Within the corporate allocation, the fund only holds investment-grade paper, with about 14% in triple-B bonds. Schafer says he is not looking to move down the credit ladder, given that triple-Bs are currently trading tight and that the firm runs a disciplined approach concerning value and sectors. "It's not cowboy land anymore," he says. He notes that 1.5% of the fund is invested in Ford Motor Co., compared to the 1.3% weighting in its benchmark.

The fund's duration is two years, compared to 1.7 and 2.5 years of its two benchmarks, the Lehman Brothers U.S. Government/Credit 1-3 Year and 1-5 Year indices.

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