Midwest Investor Shifts Gears

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  • 29 Sep 2003
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Dana Investment Advisors has sold roughly $300 million in intermediate government securities and invested the proceeds into adjustable-rate mortgages, on the view that interest rates are headed higher and ARMs will outperform. Rob Leuty, v.p. and portfolio manager of $1.5 billion in taxable fixed-income in Brookfield, Wis., says the manager's protected intermediate composite fund swapped 20% of its portfolio.

Leuty says he moved that portion out of Treasuries and agencies and replaced it with Fannie Mae- and Freddie Mac-issued ARMs. "Our outlook is flat or up for rates--if we stay flat we outperform on a yield basis, and if rates go up we also will outperform," he explains.

Leuty notes intermediate Treasuries were yielding an average of 2.62% on Sept. 18, while similar ARMs were yielding about 40 basis points more. "We're structuring the portfolio to have a positive advantage whether [rates] go up or sideways," he notes.

The move reduced the firm's allocation to govvies to 33%, with 45% in investment-grade corporates and the 20% allocation to mortgage-backeds. It has only a minimal amount in commercial mortgage-backeds and asset-backeds.

Dana runs money for foundations essentially on a total return basis, although it takes heed of the Lehman Brothers intermediate aggregate and intermediate government/credit indices, according to Leuty.

  • 29 Sep 2003

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