Shackelford has cut back his mortgage holdings from around 40% to 35%, putting the cash to work in Treasuries and agencies. Treasuries now make up another 20%, while agencies are 7-8% of his portfolio. The allocations should remain at these weightings in the near future.
Shackelford is neutral his index's weighting in corporates at 25% of the portfolio. Within corporates, the portfolio manager likes utility bonds, especially those of regulated energy and natural gas companies. He said he likes these companies for their steady cash flow and lower risk of leveraged buyouts. At the same time he is avoiding names vulnerable to leveraged buyouts, which may result in more equity-friendly behavior, he said. Shackelford declined to give examples.
The rest of the portfolio is made up of 8% commercial mortgage-backed and asset-backed securities and 2% TIPS. The asset manager is around 5% underweight the duration of his bogey, the Lehman Brothers Aggregate Bond Index.