Harris Investment Management recently reduced its holdings in 10- to 30-year U.S. Treasuries and has been using some of the proceeds to buy short-duration premium home equity loans (HELs) in the secondary market. Maureen Svagera, portfolio manager of the $400-450 million asset-backed and commercial mortgage-backed portfolio, says investing in HELs shortens duration in anticipation of a recovery and an increase in interest-rates after the anticipated war with Iraq shows signs of a resolution. Harris has also been putting assets in short-duration corporates and mortgage-backed securities.
The firm has also been rolling over its asset-backed securities portfolio to take advantage of the steep front part of the yield curve. When ABS fall below 1.9-years in duration, Svagera says, they often move from being priced off of swaps to pricing off the Euro-dollar curve, and in certain cases it is beneficial to sell securities with durations of less than 1.9-years to purchase three-year ABS. Svagera declines to give specific examples of such trades, however.
Harris portfolios are approximately 10% short its various benchmarks. Thus, portfolios using the 4.0-year Lehman aggregate, a common bogey, are 3.6-years.
