Prescott Crocker, a high-yield portfolio manager with Boston-based Evergreen Investment Management, says he will increase the firm's cyclical bond allocation by $22.5 million, or 5%, based on the assumption that an economic recovery is underway, as indicated by improved commodity prices. He will finance reducing defensive names by $13.5 million, or 3%--as well as energy bonds, by $9 million, or 2%. The manager will buy bonds at a minimum spread of 650 basis points over the curve, while selling at spreads tighter than 450 basis points. Most of the sales will be double-B rated bonds while the buys will target single-B paper. The rotation is duration neutral.
Crocker is eyeing the Young Broadcasting 10% notes of '11 (B3/B-) which yielded 577 basis points over the curve, last Tuesday. In the manufacturing sector, he is looking at the Collins & Aikman 11.5% notes of '06 (B2/B) which was trading at 926 basis points over Treasuries, last Tuesday. He will buy into the Riverwood International 10 7/8% notes of '08 (Caa1/CCC+) for the forest sector. Last Tuesday, these notes were at 664 basis points over the curve. Finally, in the chemical sector, he will look into the Huntsman International 10 1/8% notes of '09 (Caa1/B-) which, last Tuesday, had a 728 basis points spread over Treasuries.
Crocker says he will sell the Tenet Healthcare 8 1/8% notes of '08 (Ba1/BBB-), which yielded 97 basis points over the curve, last Tuesday, or the Columbia HCA 7% notes of '07 (Ba1/BB+) which had a 228 basis points spread. For gaming, he mentions the Anchor Gaming 9 7/8% notes of '08 (Ba3/BB-) which had a 454 basis points spread over Treasuries last Tuesday. For energy, he cites the Chesapeake Energy 8 1/8% notes of '11 (B1/B+) which yielded at a 359 basis points spread last Tuesday.
Crocker manages a $450 million high-yield fund with the following sector allocation: 58% in cyclical, 35% in defensive names and 7% in energy. With a 4.0-year duration, the fund has the same duration at its index, the J.P. Morgan Chase global high-yield index.
