Fiduciary Trust Company International, a New York City-based portfolio management firm with some $18 billion in taxable fixed-income, is considering an expansion into select high-yield and/or telecom credits, says Stuart Hochberger, executive v.p. and head of fixed-income. The possible move into telecom is in marked contrast to other investors who have been reducing exposure to the sector. Hochberger is pondering this foray because he says telecom has been beaten up badly in recent trading. He says some combination of better prospective profits, combined with additional Fed easing or better growth throughout the economy, might convince the firm to add 3% to high yield, possibly selling investment-grade financials such as the Citigroup (Aa2/AA-) 7.25% of '10. He says that specific credits he is considering for purchase include Global Crossing (Ba2/BB), France Telecom (A3/A-) and Deutsche Telekom (A3/A-), but would not speculate on a timetable for execution.
Hochberger has also been busy shifting 7%, or $280 million, of the firm's $4 billion core plus portfolio from intermediate-term Treasuries into investment-grade corporates of similar maturities. As a reason for this move, he notes aggressive rate-cutting by the Federal Reserve and the steepening yield curve have created an attractive climate for corporates. The firm has been investing primarily in new 10-year issues in the triple-B range, such as WorldCom 7.5% of '11 (A3/BBB+), Citizens Communications' 9.25% of '11 (Baa2/BBB), and Sanwa Bank's 7.4% of '11 (Baa1/BBB). Hochberger says each of these issues came at a significant concession to the market, as issuers have had to turn over their debt in response to diminishing investor interest in short-term paper.
In its core plus opportunistic mandates, Fiduciary allocates 35% to mortgage-backed securities, 33% to investment grade corporates, 11% to Treasuries, 7% to high yield corporates, 7% to U.S. agencies, 5% to foreign currency denominated issues and 2% to asset-backed securities. Fiduciary's 5.1-year duration is slightly long the 4.72-year Lehman Brothers aggregate index.