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Tampa Shop To Add Floaters

Wertz York Capital Management may almost double its holdings of agency floaters over the next few months.

Wertz York Capital Management may almost double its holdings of agency floaters over the next few months. The move is a response to rising interest rates, according to Brent Wertz, co-manager of a $214 million government bond fund from Tampa, Fla.

Wertz said he is looking to increase his allocation of floating-rate agency bonds from 30% of agencies up to 60%. As an example, he said he recently bought a Federal Home Loan Bank 3.05% of Sept. '06. The manager said he would finance the move by plugging new assets into the new strategy or letting money mature because of the shortness of the fund's duration.

The fund is invested 69% in agencies, 16% in mortgage-backed securities and 15% in Treasuries or cash. Within agencies, most of the fund is devoted to Fannie Mae, Freddie Mac and the Federal Home Loan Banks, with a smaller position in Federal Farm Credit Banks. Within mortgages, Wertz has a significant position in Ginnie Mae adjustable-rate mortgages whose interest rates are fixed for one, three or five years and then are annually adjusted for the rest of their maturities. "They're fairly stable and have the full faith and credit of the U.S. government," Wertz explained.

The short government fund is benchmarked against the one-year constant maturing Treasury. The fund is short the index's one-year duration at 0.85 years due to the rising interest-rate environment, Wertz said.

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