Boston Partners Asset Management has begun bulking up on corporate bonds, a move that may result in upping its allocation from roughly 22% to as much as 34%, or $192 million.Mike Mullaney, the director of the firms $1.6 billion taxable fixed income portfolio, says the strategy has been financed by selling shorter-maturity Treasuries, declining to specify how much has been added so far. The rational for the trades is his team's view that corporates will outperform other spread sectors as the Federal Reserve eases rates, as they have over recent weeks.
The corporates have been added on dips in the companies' stocks, on the view that the two markets are correlated. Mullaney looks for companies in sectors with positive cash-flow characteristics, such as energy, health-care and insurance, though he declined to single out any credits he is eyeing or has already purchased. He speculates that spread tightening of the order of 30 or more basis points on a generic 10-year, A-rated industrial, whose spread is currently in the 190 range, would make the swap into corporates appear less attractive.
The firm is selling short-term Treasuries because he still expects $40-50 billion in Treasury buybacks, mostly on the long end of the curve.
Mullaney is cautiously optimistic that the Fed's close monitoring of the economy, in conjunction with a tax cut from the incoming administration, will revive the economy. Overall, the Boston-based firm's portfolio is allocated roughly 37% to MBS, 27% to Treasuries, 22% to corporates, 11% to agencies, 1.5% to ABS and 1.5% to CMBS. The duration is neutral to the portfolio's benchmark, the 4.59-year Lehman Brothers Aggregate Bond Index.