Fort Washington Investment Advisors will wait to add duration until rates rise and the 10-year Treasury yields 4 1/2%. Tim Policinski, portfolio manager at the $1.7 billion investment-grade fixed-income fund in Cincinnati, said the fund may add duration through the corporate sector. It is currently neutral its benchmark, the Lehman Brothers Aggregate Index. The 10-year was at 3.99% on Sept. 27.
Fort Washington is currently 15% short duration. "We're waiting until after the rise in rates, when we will likely adjust our allocation. We'll add yield possibly by increasing corporates," he stated, noting the additions are contingent upon spreads widening a little. Policinski added he hasn't yet decided by how much he may increase the allocation, but noted its corporate allocation will remain within 5% of its index.
Fort Washington is a little bit overweight mortgage-backed securities and slightly underweight agencies. Policinski said he doesn't see any opportunity in the market. "There's no easy place to make up yield or carry today," he stated. Policinski said he doesn't find any corporate industry sectors or specific credits especially attractive. "We think corporates are fully priced but like their yield. We just want to earn our coupon," he added, saying he expects corporate spreads to remain in a narrow band.
Policinski will reallocate new cash to his existing investments. "With the equity market sideways, it's hard to justify going off neutral," he concluded.
