Investors Management Group, a Des Moines, Iowa manager with $2 billion in taxable fixed-income under management, is preparing to add some 5-7% to its mortgage-backed allocation, taking it from 33% of the portfolio, to nearly 40%. Kathy Beyer, portfolio manager, says the firm recently purchased Ginnie Mae 8% bonds to take its combined MBS and asset-backed allocation to a slight overweight. Beyer says the firm will continue to add 30-year Ginnie 8s if mortgage rates (the Freddie Mac survey of 30-year rates was 7.03% at the time of the interview) climb to the 7.25% range and the economy picks up, diminishing refinancing concerns.
The firm is also seeking to swap out of its Omnicare 5% of '07 (Ba3/BB+) as the price of the pharmaceutical company's busted convertibles has climbed from $64.5 in September of 1999, when Beyer made the purchase, to $9158 on July 27. It is looking to add Nabors Industries zeros of '21, also a busted convertible. (The bond is not rated, but Nabors' senior debt is rated A3/A-). Beyer says the oil and gas driller's bonds, issued at $60.84 on Feb. 5 of this year, have fallen to a price of $52 as of July 27, due to a decline in natural gas prices. Beyer thinks Nabors' earnings will hold up well, and she likes to pick up convertibles when they trade at the bond value--the value of the bond once its convertible feature is stripped out--if she believes the stock will turn around. Nabors' stock, which was in the low $60s in late April, had fallen to $31.10 on July 27.
Investors Management Group allocates 35% to corporates, 33% to MBS, 15% to U.S. Treasuries, 12% to ABS and 5% to U.S. Agencies. At a duration of 4.0-years, the manager is short the 4.70-year Lehman Brothers Aggregate Index.