First Investors Management will consider adding 5% and 5 1/2% Ginnie Mae mortgage-backed securities and extending duration by adding 15-year mortgage bonds in its $200 million GNMA fund. Clark Wagner manages the GNMA fund as part of $1.5 billion overall in New York. The money manager said he will add low-coupon GNMA MBS when the 10-year Treasury yield hits 5.15-5.25%. He expects this to happen this year. The 10-year was at 4.56% on July 6.
Wagner said there will be significant re-pricing in the short and long end of the curve even though the market had priced in the 25 basis points increase in the Fed Funds rate. He expects the spreads in the five-year and 20-year maturities to widen. At that point, he will move from duration short to neutral to the Lipper peer group index, he said.
Wagner said he would fund his purchases by using his existing cash. The $200 million GNMA fund is 80% in GNMA mortgages, 15% in Fannie Mae mortgage-backed securities and 5% in cash. The fund manager said he is underweight in GNMA securities and overweight in Fannie Mae MBS.
The Lipper index does not classify securities individually making it difficult to compare the allocation to the benchmark, he explained. These are approximations, he added. He is 5% short on duration; the index is three years.
