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Federated To Barbell Maturities

Federated Investors is building up a duration barbell in its portfolios, according to Bob Ostrowski, cio in Pittsburgh.

Bob Ostrowski

Federated Investors is building up a duration barbell in its portfolios, according to Bob Ostrowski, cio in Pittsburgh. He oversees several portfolios worth $25 billion in fixed income. The portfolios are invested in government and mortgage-backed securities, corporate, non-U.S. and high-yield bonds, with $4 billion invested in a mix of the four sectors. "From a strategy standpoint, the other thing we're trying to exploit is having all these allocations be underweight the benchmark. With the Fed tightening we are more barbelled in our portfolio structure," Ostrowski explained

To that end, Federated will focus its cash flow on bonds with durations shorter than three years and longer than six years. Federated looks at the durations of its various benchmarks, which include the Lehman Brothers Aggregate Bond Index. For example, using the Lehman Government Index as a benchmark for its portfolios invested in U.S. Treasuries, the firm stays within 80%-100% of the index's duration of five years. The manager will decrease duration if rates continue to fall, Ostrowski said.

In addition, Federated is moving toward the corporate sector and away from the industrial, finance and mortgage-backed securities sectors. Because it is concerned about interest-rate volatility, Federated will be cutting back to halfway from 80% to 100% of the benchmark's duration in mortgage-backed securities, Ostrowski said. The index is made up of 35% in mortgage-backed securities.

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