USAA Investment Management Company, which manages $3 billion in taxable fixed income, is taking on a defensive investment posture and plans to buy short-term, floating-rate corporate bonds. Didi Weinblatt, portfolio manager of the San Antonio, Texas- based fund, is on the lookout to add to plain vanilla issues such as International Paper and Honda Motor. The buys will be financed with new cash and will not affect the fund's 47% allocation to investment-grade corporate bonds. USAA is also using new cash to buy asset-backed securities, to replace bonds that are maturing, and to maintain its 4% exposure to ABS.
USAA uses a variety of indices for its accounts, which have an average duration of four years. The remainder of the assets are allocated 20% to MBS, 9% in Treasuries, 8% to taxable municipals and 5% to commercial paper assets. The Treasury allocation consists mainly of inflation-protected securities.
Like many investors, Weinblatt says she believes the economy is improving and sees the Federal Reserve in a transitional period before eventually raising interest rates at some point later this year. "The Fed will go to a more neutral stance and then eventually start raising rates in the second quarter," Weinblatt explained.
