National City Investment Management is looking to add some 5%, or $250 million, in corporate bond exposure throughout its various portfolios. Cindy Cole, senior portfolio manager of $5 billion in taxable fixed-income, sees corporates benefiting from what she believes will be a slow recovery, driving the 10-year to 5% or higher by the end of 2003. The firm will sell U.S. government securities to raise money for the purchases. Cole says National City will look for a period of weakness in the first quarter, as concerns about war or the overall health of the economy may return, to add further exposure.
One example of a credit National City will look to add is General Electric. Cole says the firm could allocate an additional 0.5%, or $25 million, of its assets to the conglomerate's bonds. At a spread of 110 over Treasuries, the GE 6.125% notes of '11 trade well wide of what their triple-A rating would seem to indicate, Cole says. Also, she believes the company's exposure to a wide range of industries continues to make it an attractive holding.
National City will continue to sell bonds in sectors such as financial institutions that have traded very tight relative to the overall market. Recent examples of credits the firm has sold include $5 million of the Wells Fargo 5.125% notes of '07 at 44 basis points over five-year Treasuries. It also sold $8 million of the Bank of America 5.25% notes of '07 at 46 basis points over the five-year. Cole says she has no problem with either credit, but the firm was able to find more yield in triple-A-rated commercial mortgage-backed securities.
At a duration of 3.90 years, the Cleveland firm's assets managed against the Lehman Brothers aggregate index are neutral to that bogey. Asset allocation in those portfolios is as follows: 37% MBS, 26% corporates, 13% agency debentures, 10% Treasuries, 8% asset-backed securities and 6% CMBS.
