Fort Washington Investment Advisors will look to add to its triple-B corporate holdings in a bid to pick up yield as the economy shows signs of improving. Tim Policinski, portfolio manager of $1.6 billion in total return portfolios, says the firm will increase its triple-B allocation by up to $40 million in the next quarter or two, trading out of Treasuries across the yield curve. The main trigger for the trade would be a resolution of the Iraq conflict, Policinski says.
Fort Washington has no specific sector targets in mind. Policinski says corporate bonds have been so scarce in recent weeks that it will largely depend on which triple-B's are available. The firm recently bought a five-year issue from Kroger on the view that the credit is stable. The Kroger 6.375% notes of '08 (Baa3/BBB-) were trading at 162 over Treasuries last Monday.
Another recent purchase was five-year paper from Daimler Chrysler. Daimler's 4.75% notes of '08 were trading at 158 over Treasuries last Monday. Fort Washington has traded in and out of all of the big three automakers as spreads have fluctuated in recent months, and will continue to do so, Policinski says.
At a duration of 3.6 years, the Cincinnati firm is 10% short one of its main benchmarks, the 4.0-year Lehman Brothers aggregate index. It allocates 40% to corporates, 23% to Treasuries, 18% to mortgage-backed securities, 12% to agencies 5% to CMBS and 2% to asset-backed securities.
