NEW YORK (TheStreet) -- Sorry, Uncle Sam, but if forced to choose between U.S. Treasury and money center bank bonds, David Withrow, portfolio manager for the Fifth Third Strategic Bond Fund (FFSAX) - Get Report, would opt for the big banks.
The $123 million fund, which gets three stars from
, has returned more than 18% over the past year, better than 98% of its rivals. Over the past three years, the fund has returned close to 5% annually, once again better than 98% of its peers.
's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
How worried are you about Treasuries?
I'm concerned about Treasuries. I think the
has quantitative easing on their minds. They are doing everything they can to hold rates down. But I think when you issue that much supply over the long term, it's an overwhelming factor that's going to push rates up. And when they start heading higher, it's going to go pretty quickly.
Are corporate bonds the safest place to be right now?
Yes. If I looked at the corporate bonds balance sheet versus the Treasury's balance sheet, I would buy corporate bonds all day. Corporate balance sheets are in as good a shape as they have been in over the last decade, maybe two decades. They have lots of cash. I think over the long haul they have positioned themselves to weather any kind of storm they might face.
What do you see going forward: inflation or deflation?
I think temporarily we are going to have some deflation in the economy. That's the short term to intermediate term. Longer term, I think inflation is inevitable considering the amount of liquidity pumped into the system and the amount of Treasury supply that is out there.
There is systemic support from the government, and they have actually done themselves a lot of favors in terms of their capital structure. And the regulations right now allow them to continue that process over a pretty extended period of time. I don't know if I would love them from an equity standpoint, because they are getting rid of some of the businesses that improve earnings. But from a debt standpoint, they have positioned themselves well.
Another issue is Supervalu (SVU) . Why do you like these bonds?
Supervalu is in the high-yield credit area, but the maturities that we own come due before they have to renegotiate their bank loan, and they still have some room on those revolvers. I think that offers them some flexibility in terms of when these bonds are due. Also, they are in an industry which is fairly stable. The grocery industry is not really subject to the whims of a fashion trend like other retailers.
Reported by Gregg Greenberg in New York
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