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Cleveland Buyer Eyes Cable, Auto Paper

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National City Investment Management Co. may increase its allocation to issues from Comcast Corp. if it sees further widening in the cable credit. It is also likely to reduce its corporate allocation from overweight to neutral. Cindy Cole, portfolio manager at the firm in Cleveland, which oversees some $5.6 billion in taxable fixed income, still sees room for a modest increase in National City's cable holdings, though it has lately been adding to names including Comcast and Cox Communications. Cole is optimistic about the cable industry's prospects because its capital expenditures are mostly in the past and new revenue growth from added subscribers or new features goes straight to the bottom line, she says. Comcast's 7.125% notes of '13 were trading at 117 basis points over Treasuries last Monday.

National City also recently added to its auto sector holdings, such as the Ford Motor Co. 7% notes of '13, which were trading at 310 basis points above Treasuries last Monday. Cole argues that the equity rally will help the auto manufacturers get a handle on their pension liabilities. She also points to recent progress the companies have made with their unions. Finally, she notes that Ford trades wide of many high-yield issues.

Before reducing its corporate allocation from overweight to neutral, National City wants to see average triple-B spreads tighten another 70 basis points--to some 80 basis points above Treasuries. If spreads reach such a level, it would match the tightest levels over the last 10 years, Cole says. She says it could take up to a year before than happens, however.

The Cleveland firm's $275 million Armada Total Return Advantage Fund is roughly neutral versus its benchmark, the 5.24-year Lehman Brothers Government Credit Index. It allocates 45% to corporates, 20% to Treasuries, 15% to agencies, 10% to mortgage-backed securities and 10% to asset-backed securities.

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