Westwood Capital Management, a Dallas-based money manager, has been buying longer maturity off-the-run U.S. treasuries as yields climbed over 6% late last month. Portfolio manager Mark Freeman says he increased his Treasury allocation by 2% in the move. Freeman, who manages $700 million in taxable fixed income, may look to make further increases to his position in off-the-runs maturing in '23 and '16 if the economy appears to be stabilizing, indicating that the Federal Reserve has come close to the end of its easing cycle. He says the expected modest, rather than drastic, drop-off in consumer spending rates would be one important sign of such stabilization. He would finance the move by using new cash and selling intermediate-term treasuries.
Freeman says he has also been gradually picking up 15-year Ginnie Mae bonds, bringing up his MBS exposure by five- to six % over the past few months, while selling treasuries. He says he will likely make further mortgage-backed additions. He likes the 15- and 30-year sectors because they are less volatile, and he will look to add Fannie Mae or Freddie Mac if he sees Ginnies as being too expensive. He would probably fund the move by selling intermediate term treasuries.
Westwood currently has about 40% of its assets in investment grade corporates, 35% in U.S. treasuries, 15% in agencies, and 10% in MBS. At 5.0 years, Westwood is short its main benchmark, the 5.54 Lehman Government Credit Index.
