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Midwest Investor Will Shift Into Mortgages

Dana Investment Advisors plans to increase its exposure to mortgage-backed securities by about $160 million in the coming months and will finance the increase by reducing its exposure to Treasuries.

Joseph Veranth
Dana Investment Advisors plans to increase its exposure to mortgage-backed securities by about $160 million in the coming months and will finance the increase by reducing its exposure to Treasuries. Joseph Veranth, executive v.p. and portfolio manager of the $1.6 billion fixed income fund in Brookfield, Wis., says he plans to increase the MBS portion to roughly 30% of the overall portfolio; mortgages currently account for 20%. Veranth says he plans to add adjustable-rate-mortgages (ARMs) because he thinks interest rates are heading northward. Veranth emphasizes that comparable mortgage-backed securities are more attractive than Treasuries and that he would consider short-term mortgages with above-market coupons, such as 6% or 6 1/2% and carrying 10- to 15-year maturities, as opposed to traditional 30-year MBS. At present, 60% of the fund is invested in equal amounts of Treasuries, agencies and MBS. The remaining 40% is held in investment-grade corporate bonds.

Separately, Veranth says he also plans to shorten the duration of his government bond portfolio to reduce interest-rate risk. He adds he expects prices on long-term Treasuries will decline most if and when rates move up; as a result, he plans to replace long-term Treasuries with short-term ones.

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