Missouri Valley Partners has recently put on an overweight position in mortgage-backed securities and is looking to maintain that weighting. Steven Jones, director of $300 million in fixed income in St. Louis, said the manager recently moved from a 32-33% MBS weighting to about a 40% allocation. This compares to the roughly 35% level in the Lehman Brothers Aggregate Bond Index, which the manager uses as its benchmark for half of its accounts. "We owned a callable agency that we figured had done as well as it was going to and we swapped out of it into pass-throughs," Jones explained. He said MVP prefers to barbell coupons in its mortgage portfolio and is looking to buy discounts and premiums in favor of current coupon securities. "Current coupons seem to be overpriced and right now they have the most potential to be volatile," he reasoned.
Elsewhere in the portfolio, MVP is also overweight corporates, with a 45% weighting relative to the index's 30%, but Jones stressed on a contribution-to-duration basis, the manager is actually underweight credit because its investments are at the front of the curve. "We think corporates are fair to maybe a little overvalued; the easy money in corporates has already been made so we are trying to stay close to our benchmark," he said. That being said, Jones noted short-term, highly rated corporate credits remain attractive because they offer a yield pickup to government paper. "We like corporates in the short end. You need to pick up yield where you can," he said.
The firm tends to take positions in large global issues in the secondary market, which Jones said offers better value than the primary market. As part of a duration barbell, the manager is also looking to continue buying Treasuries at the long end of the curve.
