The majority of the fund is composed of ARMs, with 39% in mortgages that reset off LIBOR, 29% in mortgages with constant-maturity Treasury-linked rates and 4% in mortgages that reset off the cost of funds index. The rest is composed of 23% in fixed-rate mortgages and 5% in cash. Overall, the fund may add $90 million of the hybrid ARMs.
Within the 29% invested in mortgages that reset off one-year CMT, Denfeld plans to add a few percentage points to its holdings of front-end sequentials. The portfolio manager will fund the move using new cash and sales of money market collateralized mortgage obligations. He declined to quantify how much of his CMO holdings he would sell.
About 52% of the fund is backed by mortgages issued by agencies, while 43% is backed by triple-A private label mortgages. The fund's duration is 0.7 years and its bogey is the six-month Treasury bill.