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John Hancock To Add Mortgages

John Hancock's Investment Grade Bond Fund plans to add mortgage-backed securities to its portfolio.

Jeff Given

John Hancock's Investment Grade Bond Fund plans to add mortgage-backed securities to its portfolio. Jeff Given, portfolio manager of the $200 million fund, said he would add pass-throughs if they cheapen by another 15-20 basis points. Given said he would finance the purchases from the sale of Treasuries, moving the fund's MBS allocation from underweight to either neutral or overweight. The sector currently accounts for 30% of the fund, which is underweight relative to the MBS allocation in the Lehman Brothers Aggregate Bond Index. Overall, the Boston-based manager oversees four funds totaling more than $1 billion. Given said MBS is expected to cheapen with expectations of higher rates and a broader backup in fixed-income yields across all sectors. He predicted that in the current environment, MBS should perform well. Explaining the rationale for exiting Treasuries and adding mortgages, he pointed out that Treasuries will certainly underperform with higher rates leading to lower returns. Coupled with expectations of increased supply, Treasuries appear headed for a fall and other sectors appear more attractive, he added.

The fund is currently about 15% short duration. Other allocations include 30-35% in corporate bonds, 15-20% in Treasuries and the balance in cash and asset-backed securities.

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