Magazine article American Banker

Funds Easing Up on Bank Bonds

Magazine article American Banker

Funds Easing Up on Bank Bonds

Article excerpt

Money managers have reduced the percentage of their portfolios allocated to bank bonds, believing there is little upside left after a phenomenal performance since January 1992.

Three of the lagest mutual fund managers - Fidelity Investments, Pacific Investment Management Co., and T. Rowe Price Associates - said they have either cut portfolio weightings for bank bonds or recommended that managers not increase allocations.

"The sector has outperformed so dramatically that you would be hard pressed to see a continued dramatic outperformance this year," said Benjamin Trosky, vice president with Pacific Investment Management in Newport Beach, Calif.

Pullback in 4th Quarter

He said Pimco, which manages $45 billion in funds, started to reduce its weighting in bank bonds in the fourth quarter of 1992 after being "dramatically overweighted versus just about any other type of corporate bond."

Bond fund managers determine whether they are overweighted, neutral, or underweighted by comparing their allocations to benchmark indexes maintained by Lehman Brothers, Salomon Brothers Inc., and other large firms.

Robert Rubino, a vice president with T. Rowe Price in Baltimore, said, "Actually we have been saying since January and February that with the contraction of spreads in the sector, this might be a good opportunity for some funds with an overweighting to banks to move to a more neutral weighting."

Funds managed by T. Rowe Price hold roughly $650 million in bank and thrift bonds and $650 million in finance company bonds, Mr. …

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