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| Cliff Rowe |
Loomis Sayles may add more than $600 million in mortgage-backed securities at the expense of Treasuries and high-grade corporates. Cliff Rowe, who manages the $22 billion Benchmark Core Fund from Boston, said that if the Lehman Brothers Mortgage Index underperforms Treasuries by more than 20 basis points in the coming weeks, he will increase his MBS allocation from underweight to either neutral or overweight to the benchmark, by adding prime collateral. He declined to be more specific as to what triggers might prompt a move or say whether the fund will move to neutral or overweight the benchmark. The fund has a 32% allocation to MBS, compared to 35% in the Lehman Aggregate. Rowe explained that there is a potential for MBS to cheapen on the back of strong economic data in the coming weeks and said such a scenario would create buying opportunities. He emphasized that if prices on Treasuries continue to fall and there is continued high volatility, MBS is likely to cheapen further, making it even more attractive in relation to Treasuries and high-grade corporates.
Rowe said he will also continue to maintain his overweight in triple-B corporate bonds, especially in the paper and auto sectors because he said these will benefit more from economic growth than will higher-rated bonds. Elsewhere, the fund holds about 6-8% more in corporates than the index does and is about 4% higher in asset-backeds. The fund is underweight Treasuries by 10%.
