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| Jim Hannan |
MTB Investment Advisors is looking to add up to $40 million to its pass-through allocation. Jim Hannan, portfolio manager of $2 billion in funds in Baltimore, sees pass-throughs as a good value for lower coupon mortgages and wants to add to his slightly underweight position. At present the firm has a 30% position in MBS. Hannan would raise that to 32% of overall assets by adding 5% and 5.5% 30-year pass-throughs from among the three major issuers. In high-grade corporates, Hannan says he wants to maintain the fund's overweight position because he expects that these bonds will outperform in the current environment. He says he will look to increase his 42% exposure through the addition of investment-grade autos if he sees further weakness in spreads. For example, he says that if GMAC's notes of '31, which were trading at 230 basis points over Treasuries on March 8, back up by 10-15 basis points, he would consider adding about a half a percentage point position. He expects spreads will widen because the recent unemployment report calls into question the sustainability of consumer spending.
The fund invests across the board in corporates, mainly in high-grade, and is overweight to triple-B names. Hannan says he prefers the energy sector for its positive fundamentals and high energy prices. The fund also invests 5% in high-yield corporates. Hannan says he favors high double-B credits such as Gap Inc., which he says has tremendous comparative sales and improving margins. He predicts the company will have an investment-grade rating later this year. He also invests in bonds of Yum! Brands, which was recently upgraded to investment grade, and Tyco International.
Hannan maintains a neutral duration of 4.25 years compared to the fund's benchmark, the Lipper Corporate A-Rated Debt Fund. The fund's remaining allocations include about 15% to government bonds and 11% to collateralized mortgage obligations.
