Glenmede Trust Company will put new cash into mortgage-backed securities. Steven Point, portfolio manager in Philadelphia, said he will buy 30-year Ginnie Mae 5.5% and 6% and 15-year 5% securities because they are cheap in relation to other asset classes. Point said GNMAs are cheaper by about 0.15 in price than other agencies.
Point said GNMAs are also less responsive to prepayments than other agencies, making them a bit cheaper and thus more attractive in his view. He manages a $1.4 billion portfolio at Glenmede Trust. He declined to quantify how much he will buy.
The purchases of GNMAs will not affect the firm's allocation to mortgages, but will maintain its neutral position. Point also plans to maintain the fund's current underweight allocation in Treasuries, while being overweight agencies and corporates. The firm runs money against the Lehman Brothers Aggregate Bond Index.
In mortgages, Point said he invests in high-coupon securities. He defined high coupons as 6%. In corporates, he invests down to single-A. He is duration-neutral in relation to the benchmark. He says he is driven by sector ratings and does not invest in the short end of the yield curve. He stays away from triple-B corporate bonds and is completely out of the telecom and airlines industries. The firm's overall strategy is based on his expectation that the 10-year Treasury yield will range from 3.6-4.3%. This is a reasonably narrow trading range for money managers to hedge their investments, Point said.
