Hyperion Capital Management is looking at rotating $100 million from U.S. corporates to ABS for over the next two quarters, as soon as corporate spreads go back to more normal historical levels against swaps, says Dominick Bonnano, portfolio manager with the New York-based investment firm. He sees this as being perhaps an additional 20-30 basis point further in along the five-10 year swap curve, but would not speculate as to when this might occur, other than to say it will happen in the next two quarters.
Until then, Bonnano is a buyer of select corporates. He recently bought some 6 7/8 % Marriott International's of '05 (Baa1/BBB+), some 6 1/2% Tyco International's of '11 (Baa1/A-), and some 7 1/2% Washington Mutual's (A3/BBB+), because these and recent acquisitions fit his style. He declined to say if those particular names would be liquidated when he begins the process of re-allocation.
Bonnano likes seasoned non-agency mortgage paper and ABS home equity on the short end of the maturity spectrum, especially from well-known issuers like Countrywide Credit Industries. He adds that refinancing risk should not be problematic by the time he puts on the trade, given that most of the Federal Reserve easing should have already occurred. The manager declined to be more specific on his future purchases.
Hyperion, out of a total of $6.5 Billion assets under management, has $1 billion core assets against the Lehman Brothers aggregate and this fund has an asset allocation of 40% corporates, 35% MBS, 10% agencies, 6% treasuries, 5% ABS and 4% cash. With a duration of 4.50 years, this portfolio is slightly shorter than its benchmark, whose duration is 4.66 years.
