US Bancorp Asset Management is looking to buy triple-B corporates to maintain its overweight investment-grade position. Jeff Ebert, who helps manage $17 billion in fixed-income assets from Minneapolis, said he will use new cash to buy triple-B credits in sectors including autos, cable and media. High-grade corporates account for $5 billion of total assets.
The auto sector is attractive because, while the fundamentals are not that positive, Ebert thinks auto bonds trade cheap to the rest of the market and still have value. For example, he noted the Ford Motor Co. 7% notes of '13 (A3/BBB-) were trading at 220 basis points above Treasuries whereas in the energy sector, for example, holding company Duke Capital's 6 1/4% notes of '13 (Baa3/BBB-) were at 120 basis points over Treasuries.
Ebert is also looking to buy cable and media bonds. He noted many of the big companies in these sectors have consolidated and some, including Comcast Corp. and The Walt Disney Co., are looking to become more well-rounded providers of content and delivery. He declined to specify what credits he is looking to buy. Ebert prefers to barbell his portfolio by using longer-term corporates and short asset-backed securities. The additions will not change the roughly 30% allocation to corporates but will offset maturing securities. Overall, Ebert said the triple-B range is attractive because a bond's average 125 basis point spread over Treasuries is appealing on a carry basis. As a result, he said the firm is overweight triple-Bs but he declined to quantify by how much.
To account for an overweight to autos and cable/media, Ebert keeps an underweight position in bank and finance paper, because he thinks these highly rated bonds do not have much upside left.
Outside of corporates, about 15% of the portfolio is in agencies, 10% is in asset-backed securities and 9% is in Treasuries. The remainder of the portfolio is in residential mortgage-backeds, commercial mortgage-backeds and cash. The firm is short the 4.5-year duration of its benchmark, the Lehman Brothers Aggregate Bond Index, on the view that rates will head higher in the next six months to a year. He declined to specify where the portfolio is.