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| Joseph Veranth |
Dana Investment Advisors is looking to pick up yield through mortgage-backed securities. Joseph Veranth, executive v.p. and portfolio manager at the Brookfield, Wis., firm which manages $2.3 billion, two-thirds of which is in investment-grade fixed-income, said MBS offers incremental yield. "The core of our strategy is to be shorter duration, but make it up with yield through MBS," he stated. The manager uses many benchmarks including the Lehman Brothers Aggregate Bond Index and is 10-15% overweight MBS. He expects to maintain his current allocations in what he characterizes as a slightly defensive position. Veranth believes MBS will outperform in a flat to rising-rate environment. Dana has exposure across the sector and is looking to pick up coupons through par-type MBS, including adjustable-rate mortgages (ARMs), noted the manager. "We're leaning toward slight premiums because we're a little more defensive as rates creep up," he added.
Dana is currently 10% short duration. "We expect to keep it there with the curve flattening and increasing pressure on the five and 10-year areas of the curve," said Veranth. He anticipates the Federal Reserve is headed toward a Fed Funds rate above inflation and will raise rates by 25 basis points each meeting. "I don't think there's any economic news out there to force them to go to a 50 basis point move," he added, highlighting the dollar's recently building strength as corroborating his view.
Veranth is 10-15% underweight agencies because he said spreads are too tight versus the curve. The manager is neutral corporates. "Our take on corporates is that they're at historically tight spreads, which credit fundamentals support," he said, adding spread widening is not imminent.
