Bill Gahagan, portfolio manager at American Century Investments, says he will rotate 5% of the firm's portfolio, or $65 million, from asset-backed securities to corporates. Equity prices need to stabilize and clearer signs of an economic recovery must be visible before adding corporates, he says, declining to specify any particular trigger. But, he notes that the move is unlikely to occur within the next three or four months, because the market needs to wash itself from the wave of corporate accounting scandals, first.
Gahagan says he wants to add corporates to be neutral the portfolio's benchmark, the Salomon Smith Barney medium-term index, and because spreads will tighten once the economy picks up speed. At a 2.85-year duration, the firm is slightly shorter than the 3.0-year index.
Gahagan says he will first liquidate the firm's holdings in auto ABS and rate-reduction bonds. He argues that those ABS sectors are where spreads have come in the most--autos because of their appeal as a safe haven and the rate reduction bonds because of limited supply.
He declines to elaborate on his future corporate trades, but he says the firm will look at high-grade corporates rated triple-B and single-A across numerous sectors.
The Mountain View, Calif.-based asset manager oversees a $1.3 billion portfolio. The firm has over $20 billion in fixed income assets currently under managemnet. Gahagan allocates 19% to ABS, 17% to corporates, 17% to non-agency mortgage-backed securities, 15% to agency pass-throughs, 14% to agency debentures, 10% to commercial mortgage-backed securities and 8% to Treasuries.
