California Manager To Add Pass-Throughs

Franklin Templeton Investments may add Freddie Mac and Fannie Mae pass-throughs to its already overweight portfolio. Roger Bayston, manager of the $400 million Strategic Mortgage Bond Fund in San Mateo, Calif., said Fannies and Freddies are cheaper than Ginnie Maes in the current environment.

  • 28 May 2004
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Roger Bayston
Franklin Templeton Investments may add Freddie Mac and Fannie Mae pass-throughs to its already overweight portfolio. Roger Bayston, manager of the $400 million Strategic Mortgage Bond Fund in San Mateo, Calif., said Fannies and Freddies are cheaper than Ginnie Maes in the current environment. Bayston stressed the fund is biased in favor of Freddie and Fannie paper but refused to specify the coupon of these assets and declined to divulge how much money the fund will put to work, citing Securities and Exchange Commission regulations for mutual funds. "The market has mispriced the prepayment risk," he pointed out and added that the total return volatility is more favorable in Fannie and Freddie pass-throughs than other fixed-income assets.

The fund follows the Lehman Brothers Mortgage Index. The duration of the fund mirrors the Lehman Index, that is, it is under four years. The overall portfolio is duration neutral in relation to the index, Bayston pointed out.

In its current allocation, 40% of the fund's assets are in different Fannie paper, another 40% in Freddie assets and 20% are held in GNMAs. Bayston declined to reveal the coupons of these assets. The fund also invests about 12% in adjustable-rate mortgage backed securities and mortgage-related asset-backed securities. Bayston explained that the total exceeds 100% because of forward settlements. Although he said the fund is overweight Fannies and Freddies in relation to the benchmark and underweight in GNMA, Bayston declined to quantify the differences.

  • 28 May 2004

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