Appleton Partners is looking to increase its corporate allocation by 5% or $15 million of its $300 million portfolio. Bonnie Tracy, portfolio manager in Boston, said she may raise the investment-grade corporate allocation to 60% of the portfolio. It had been cut to 55% earlier in the year in response to spread tightening. She said the money would come out of the agency allocation and depends on spread movement but she was unable to comment on when she might add to corporates or what spreads she is looking for, except to say that any changes would be very credit-specific.
Tracy said she is "scenario testing" the portfolio to make sure it can withstand rate changes. To do this she has shortened duration in anticipation of higher rates and increased the coupons of her holdings by buying higher coupon issuers from the same issuer. She is also maintaining a high level of liquidity by investing in large global credits--leaving her the flexibility to respond to changing market conditions. "With a steep yield curve environment, we've used the ability to ride down the yield curve as a way of enhancing value." She is looking for opportunities with specific credits that are improving, but declined to comment further.
Within corporates, Tracy said the sweet spot is with single-A bonds. The portfolio is light in telecoms, which she feels has a decent supply but not the valuation levels that she considers appropriate for the portfolio. It is heavier in financials, as Tracy noted there are a lot of opportunities there and plenty of supply. She declined to specify certain names she owns.
Treasuries and agencies account for 45% of the taxable fixed-income portfolio, with agencies making up the lion's share of that. Tracy is cautious around extension risk. The portfolio's duration is 0.15 years shorter than its benchmark, the Lehman Brothers Government/Credit Intermediate Index, which is 3.75 years. The firm also focuses on intermediate-term and short-term munis. Clients include high net worth individuals, retirement plans, municipalities, foundations and endowments.