| |
| Lee Smith |
Lee Smith, v.p. and director of trading at Cozad Asset Management, a Champaign, Ill.-based firm with about $425 million in assets under management, is transitioning his investments back into the five-to-seven year range after operating as an ultra-short fund the past several years. Smith is moving out of one and two-year maturities and is looking at one-time callable agencies with a year or two of protection. "We are not going to turn around and sell all of our investments just so we can buy into things that fit our new strategy, we are going to wait until our current paper comes off the books and then re-invest; it's definitely where we will be putting our new cash," Smith said. Smith bases his strategy on the belief the Federal Reserve is either done or close to done raising interest rates. With the possibility that short-term rates could flatten, Smith is looking to buy paper that stays on the books. "I recently bought into a piece of Freddie Mac that pays 5.5 [percent] and matures in February '13. It has a one-time call in February '08; if it makes it past the two years, I've got a bullet at 5.5 with five years left and I'm looking pretty good," he said. Smith looks at his new strategy as a more normalized situation given the current yield curve environment.
"Callable agencies really have become our paper of choice seeing as they are AAA-rated paper. We do still retain some interest in financials, CIT has some yield, and corporates, but there isn't much out there to fit our strategy. We wouldn't look into a GMAC or a Ford; we're not high-yield buyers and there is too much risk," Smith explained.
When he does buy corporates, Smith looks at A-rated paper or better. "Even then, buying a corporate instead of a callable agency is [like] trading a AAA for an A and that's in a best case scenario." Smith is not locked into an index but he does gauge his investments against the Lehman Brothers' Government Corporate Index, as he feels it gives him the best approximation for his investments.
