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| Brian Allen |
C. S. McKee & Co. plans to reduce its exposure to agencies by 5%, or about $70 million, and use the proceeds to buy Treasuries. It will make the move when the 10-year yield hits close to 5%, something Brian Allen, who manages $1.3 billion in taxable fixed income from Pittsburgh, says will happen in the coming months. The yield stood at 4.55% on May 5. Allen said his strategy has been to avoid credit risk while still focusing on high-yielding securities. He is accomplishing this by investing in callable agencies--both zero-coupon and those that pay interest provided six-month LIBOR stays between 7.5-9.5%, he said. The portfolio's overall duration is 4.3 years, or 5% short of the Lehman Brothers Aggregate Bond Index.
In the current allocation, Allen is heavily overweight in agencies, neutral in Treasuries, underweight by 20% in mortgage-backed securities and slightly underweight in corporates in relation to the index. Twenty percent of the portfolio is in Treasuries, 40% in agencies, about 10-15% in mortgage-backed securities and about 25% in corporates. Agencies will be reduced to 35% and Treasuries will be raised to 25%.
Explaining his rationale on currently being 20% underweight in MBS and about 30% overweight in agencies, Allen said he has invested heavily in long maturity callable zero coupon agencies with a lock-out of one to five years that give better returns than MBS.
The firm has a total of $3.5 billion under management.
