Ely Fund Managers, which manages £70 million in gilts and non-gilts in London, is looking to take profits in a few of its corporate bond holdings. Karen McCusker, director fixed income, says the recent spread narrowing in non-gilts has been beneficial for the firm, but at the same time has made some names a bit expensive. "We won't see spreads widen out, but don't see them tightening much more," says McCusker.
One name that is getting a touch expensive for Ely is Centrica, formerly British Gas. Specifically, McCusker is looking at unloading Centrica's 5 7/8% of '12, which were trading at 55 over gilts last week. She would sell at 50 over. Another pricey holding is Wal-Mart's 4 3/4% of '13. McCusker is waiting for five basis points in tightening from its current 40 to sell. Ely has already taken profits in Safeway, which it sold at 130 basis points over gilts, in reaction to the culmination of the company's takeover. McCusker bought Safeway at 200 over gilts.
McCusker hasn't been buying much lately, because bonds have been too tightly priced. The most recent bonds she has bought were AngloAmerican's 5.125% of '10. McCusker bought Anglo American, because it was a new name in the sterling market, is well-known and came on a spread of 74 basis points over gilts and was trading at 68 last week. The firm has also purchased Tompkins' 6.125% of '15, because the company is not a frequent borrower and spread at the time of purchase--117 over gilts--was quite attractive.
Ely allocates roughly 50% of its portfolio to gilts and the balance to non-gilts. The firm benchmarks its fund against the FT Government all stocks index and its peer group.
