Groupama Asset Management is preparing to shift some $15 million out of Treasuries and into corporate bonds in a bid to add yield. Dan Portanova, portfolio manager of $150 million in taxable fixed-income, says he will also look to shift out of consumer non-durables whose stock performance has held up well. Before making the trades, however, Portanova says he would like to see continued improvement in corporate bonds versus Treasuries, improved corporate earnings, tax stimulus in 2004 moved up to 2003 and a more stable picture overseas.
Groupama may look to add to its holdings of Morgan Stanley and Lehman Brothers. Morgan Stanley's 6.6% notes of '12 and Lehman's 6.625% notes of '12 were quoted at 145 basis points over Treasuries last Tuesday. Portanova likes Lehman because it has been working to augment its strength in fixed-income by making hires in areas like equities and M&A. He compares Morgan Stanley to Citigroup, in that it has a large asset management business and is involved in all the major global markets. However, Citigroup's 5.625% notes of '12 are more expensive, trading at 125 basis points over Treasuries last Tuesday. Groupama may also look to add to its Alcoa 6.5% notes of '11, which were trading at 100 basis points over 10-year Treasuries last Monday. All of these issues, Portanova reasons, should do particularly well in an improved economic environment.
In addition to the issues mentioned above, Groupama will try to buy three- and seven-year corporates while selling five-year Treasuries in order to take advantage of the overall flattening of the curve that should come as the economy improves. However, if three- and seven-year paper proves too scarce, Groupama will look to buy five-year issues, Portanova says.
At a duration of 3.5 years, the New York money manager is slightly short its bogey, the 3.65-year Lehman Brothers intermediate government credit index. It allocates 50% of its assets to corporates and 50% to Treasuries.