Segall, Bryant & Hamill is seeking to add $50 million in 30-year Fannie Mae and Freddie Mac 6% and 6.5% pass-throughs with low gross weighted average coupons. Jim Dadura, portfolio manager of a $1.15 billion taxable fixed-income portfolio, believes a great deal of prepayment risk is already priced into the securities. To raise assets for the purchase, the money manager will sell Treasury and agency securities of less than five-years in maturity on the view that the short part of the Treasury curve will not appreciate further. Segall, Bryant has already bought close to $20 million of the bonds, using new cash, pay-downs and agency debentures.
The firm also recently bought some $20 million in railroad bonds. It picked up the Union Pacific 6.5% notes of '12 (Baa3/BBB) which were trading at 231 basis points over Treasuries last Tuesday and the Canadian National 6.625% notes of '08 (Baa2/BBB+) which were bid at 187 basis points over the curve. Dadura says the railroads have proven their ability to improve cash flow on increased volume rather than price hikes in a weak economy.
At a duration of 4.0-years, the Chicago-based firm is neutral to its bogey, the Lehman Brothers aggregate. It allocates 35% to MBS, 30% to corporates, 15% each to Treasuries and agencies and 5% to asset-backed securities.
