Fort Washington Investment Advisors plans to fiddle with the duration of its $500 million Touchstone Core Bond Fund in the coming weeks, likely by selling longer-dated securities and buying shorter bonds to cut duration, according to senior portfolio manager Tim Policinski. He reasons the strategy would be consistent with a view that the economy is improving and higher rates are on the way. The fund is currently 5% short the 4.6-year duration of the Lehman Brothers aggregate bond index, its benchmark, and could go to 15% short its bogey.
How much the fund sells depends on how much it will cut duration. But, a rise in prices could jumpstart the process, Policinski says, adding that a 20 basis point or so drop in 10-year Treasuries would likely prompt him to shorten up. "If we see the market rally and get back into the 4.30% area, we will sell securities to get duration shorter in anticipation of higher rates," he notes. The 10-year yielded 4.55% on Sept 4.
Otherwise, the Cincinnati money manager has a roughly 25% exposure to government bonds, 27% to mortgage-backeds, 6% to commercial mortgage-backeds, and 1.5% to ABS. The rest is in investment-grade corporates and a minimal amount of cash.
