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| Joseph Lombardi |
Sage Advisory Services plans to continue buying Treasury inflation-protected securities (TIPS) in favor of traditional Treasuries in the coming months. Joseph Lombardi, who manages a $3.5 billion taxable fixed-income portfolio from Austin, Texas, said he has substituted TIPS for Treasuries and plans to put new cash into the market, even though he expressed some concern about the recent rise in TIPS valuations. Specifically, Sage underweighted Treasuries by 5-10% in relation to the Lehman Brothers Government Credit Index and bought TIPS. Lombardi, who is also underweight corporates by 10%, has also bought TIPS from the proceeds of recent sales of collateralized mortgage obligations and asset-backed securities. He said the exposure to these assets were minimal.
The portfolio manager, in a sharp shift in strategy has also recently reduced his holdings in Fannie Mae and Freddie Mac agency paper and substituted these with Federal Home Loan Bank (FHLB) and Federal Farm Credit securities. Lombardi expressed serious concern over Fannie and Freddie's headline risk and said he has not and does not plan to buy agency paper. He stressed that his overall allocation is neutral in agency holdings though he has substituted Fannie and Freddie with FHLB and Federal Farm Credit.
In anticipation of a flatter yield curve, Lombardi is short duration by 10-20%. This will remain so until the Federal Reserve tightening begins, he added.
