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Chicago Firm To Barbell MBS

Segall Bryant & Hamill Investment Counsel plans to buy up to $22 million in mortgage-backed securities with new cash.

Segall Bryant & Hamill Investment Counsel plans to buy up to $22 million in mortgage-backed securities with new cash. The move will increase its MBS allocation by at least 2.5%. Greg Hosbein, portfolio manager of $1.1 billion in taxable fixed income, says he is focusing on adding pass-throughs that offer coupons of 4.5% and 5.5%, while also using new cash in two- and 30-year maturities to put on a barbell maturity structure. Hosbein states that in a slightly rising rate environment, mortgages tend to do the best. Mortgages currently account for 34% of the portfolio, neutral relative to the portfolio's benchmark, and will be up to an overweight position of up to roughly 39% once Hosbein is finished adding mortgages. The firm uses the Lehman Brothers Aggregate Bond Index.

Elsewhere, in investment-grade corporates, Hosbein invests in the bonds of industrials with triple-B and single-A ratings to participate in a stronger economy. He remains underweight in finance paper due to concerns of what will happen to the finance sector in a flattening yield curve environment. Hosbein recently bought Toyota Motor Credit's 4.35% bonds of '10 because he says they were attractively priced relative to other Toyota issues, adding it was "one way to get exposure to the auto market in a company that is actually making money." However, the firm does not plan to change its allocation to high-grade corporate bonds, which at 41% is lready overweight.

The firm's average duration is 4.5 years, or 97% that of its benchmark. The remainder of the portfolio is allocated roughly 10% to agencies and 8% to Treasuries, both of which are underweight. Five percent is in asset-backed securities, an overweight position. The rest is in cash.

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