Portfolio Manager Perspectives

Jeff Benjamin

First American Funds' Tim Palmer: Bet on financial sector's high-grade bonds

Oct 30, 2009 @ 2:48 pm

By Jeff Benjamin

With the economy in recovery mode, Tim Palmer, a senior portfolio manager with First American Funds, has zeroed in on the financial sector's high-grade bonds.

“The economic recovery won't be all-inclusive and rapidly expanding from this point,” said Mr. Palmer, who manages $15 billion in fixed-income portfolios.

The opportunities exist largely because of the “cloud of uncertainty” hanging over the sector — namely because of banks.

“It is true that the financial sector is facing significant challenges,” he said. “But, thanks to the Fed policies, the banks have seen a liquidity build-up, and the markets have helped them to recapitalize.”

Mr. Palmer said he also likes to select high-yield corporate bonds.

Based on economic policy initiatives being undertaken by Congress, Mr. Palmer said he anticipates that higher interest rates are on the horizon. But he is not dwelling on this possibility as an immediate threat to his strategy.

“I am inclined to think that rates will be higher at some point, but the impact will depend on the timing and the magnitude of the interest rate increases, and even then I'm not looking for aggressively higher interest rates,” he said. “With some shorter-duration bond exposure, our fund is positioned right now as moderately defensive to higher interest rates.”

The First American Total Return Bond Fund (FCDDX) is one of the mutual funds that Mr. Palmer oversees, in addition several separate-account portfolios.

This year through Oct. 29, the fund was up more than 33%, which includes a gain of more than 45% from the March 9 stock market low.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives

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