Heber, Fuger, Wendin is shortening its duration while buying selectively into the corporate sector, says Donald Jeffery, portfolio manager with the Bloomfield Hills, Mich.-based asset management firm. Jeffery says the firm's average duration is 1.80 years and he aims to shorten it to 1.40 years. The average maturity of the portfolio is less than three years and new purchases have carried 15- to-18-month maturities. In order to capture additional yield, Jeffery watches current versus historical spreads and hits the areas that seem to trade wider. He likes, for instance, the finance sector, because bonds of finance companies trade wider and offer more room for further tightening. As an example, he cites the purchase--at a 90 basis point spread over treasury--of Ford Motor Credit 6.12% '03 (A2/A). Last Monday, the bonds were trading at a price of 101.78. Jeffery mentions that the firm uses new cash or portfolio rollovers to finance its purchases.
The fund, which totals $3.8 billion, is invested 30% in agencies (debentures), 30% in tax-free bonds, 20% in MBS (agency pools, agency CMOs, PAC CMOs), 10% in treasuries and 10% in corporates. There is no specific benchmark for this portfolio.