Investor To Buy TIPS When Yields Back Up

Stephens Capital Management may invest up to $180 million in Treasury Inflation Protected Securities once yields on 10-year TIPS back up to at least 3% from the current yield of 1.7%.

  • 19 Nov 2004
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Alan Tedford

Stephens Capital Management may invest up to $180 million in Treasury Inflation Protected Securities once yields on 10-year TIPS back up to at least 3% from the current yield of 1.7%. Portfolio manager Alan Tedford said he would consider investing up to 25% of his portfolio in TIPS at that point, although he declined to speculate on when yields might hit that level. Tedford manages $725 million in government fixed-income securities with his father, William Tedford, from Little Rock, Ark.

Tedford sold off his holdings of the inflation-based product in the fall of 2002 and has not bought any since because of the product's richness. "We were an early proponent of TIPS back in 1999 when they were relatively not so well understood. The problem is they're overvalued now," he explained.

To fund the purchases of TIPS, Tedford said he may shift cash from his 5% allocation of Fannie Mae and his more than 90% holdings of Treasuries. The manager has been gradually cutting back his Fannie Mae debt from 15% over the past year, mostly to maintain his portfolio's duration.

"We've been unwinding them for some time because of the accounting situation and Chairman Alan Greenspan's comments that we need to take away the government's implied guarantee," Tedford noted.

Tedford said he would also increase his portfolio's duration once inflation peaks, which he believes may be at 3.25% by late in the first quarter of 2005, up from 2.7% as of Nov. 12, barring any further spikes in oil prices. Tedford's portfolio is 0.85 years short of his duration's benchmark, the Lehman Brothers Intermediate Treasury Index.

  • 19 Nov 2004

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4 Barclays 75,288.19 241 6.66%
5 Goldman Sachs 68,504.71 208 6.06%

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1 Deutsche Bank 19,381.65 47 8.82%
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4 Citi 6,897.11 46 6.62%
5 Bank of America Merrill Lynch 6,215.31 24 5.96%