Given said MBS is expected to cheapen with expectations of higher rates and a broader backup in fixed-income yields across all sectors. He predicted that in the current environment, MBS should perform well. Explaining the rationale for exiting Treasuries and adding mortgages, he pointed out that Treasuries will certainly underperform with higher rates leading to lower returns. Coupled with expectations of increased supply, Treasuries appear headed for a fall and other sectors appear more attractive, he added.
The fund is currently about 15% short duration. Other allocations include 30-35% in corporate bonds, 15-20% in Treasuries and the balance in cash and asset-backed securities.