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| David Albrycht |
Albrycht is the senior portfolio manager at Phoenix Companies, Asset Management Division, and manages $3.4 billion in fixed income from Hartford, Conn.
What strategy do you follow in a rising-rate environment?
We don't guess rates--we're pretty neutral on a rate basis. Back when the July nonfarm payroll numbers were issued in August, people expected 240,000. The actual number was 32,000 and a lot of our competitors were very, very short. Then all these people ran to buy duration and spread product. They expected the market to continue to see improving economic numbers with rising interest rates, but they were caught on the wrong side of the trade and then they were trying to add duration and buy spread product to catch up to exactly where we already were.
Guessing rates can blow away all issues in sector calls by being wrong. Our competitors were short, they wanted duration to be more competitive and lo and behold they got crushed. We pick sectors and issues to minimize volatility.
Where do you see value in the market?
The market right now is near all-time tights across markets. We find value by being well diversified. We like double-B high-yield credits; our thought there is in the last two rising rate environments double-B high-yield bonds outperformed other asset classes. So we own some Gap, Hilton Hotels and Boise Cascade.
Spreads are tight, but corporate and domestic high-yield bonds are a good bet. Balance sheets have improved. Companies have de-leveraged cash on their balance sheets. Our vulnerability is where companies who have built up cash do management buybacks, like Cox Communications.
We invest in all 12 sectors in the bond market. Some companies have mutual funds that only invest in 3 or 4 sectors, but we said, "Why take away the opportunity?" Foreign markets have been great performers and we also like dollar denominated double B sovereign risk. We own a small position in Brazil, Mexico and the Philippines. If the currency weakens, we can take advantage of currency outperformance.
We also like net interest margin bonds because they're short, high-quality and attractive on a yield basis. They produce yields of 6-7%, which is a nice addition to short-duration portfolios.
How do you think the economy will perform in the fourth quarter and next year?
There's no real strength in the economy. Interest rates are still low, there's no more mortgage refinancing and the fiscal stimulus is pretty much gone. I think [Alan] Greenspan is going to continue his measured approach, and definitely raise the Fed Funds rate by 25 basis points. There's a 20-30% chance of a rate hike in December, now that people are looking at economic numbers and oil at $51 a barrel. A rate increase in December is looking less and less like a possibility.
What companies' research do you like?
We look at a variety of research. The credit guys look at Street research, independent research and our own research. CreditSights is excellent. I like Kenneth Elgarten at UBS who does the U.S. Credit Compass. I also use the Citigroup Bond Market Roundup Strategy by Dennis Adler. Other people who are good are Mark Howard at Lehman Brothers who does Global Relative Value with Jack Malvey.