Napoleon Rodgers, portfolio manager at Alpha Capital Management, says he will add agency bullets, Treasuries and high-quality corporates, using existing cash and new money to fund those acquisitions. The overall purchase will represent 11%, or $13.2 million of the firm's $120 million portfolio. Those purchases will be distributed between agency bullets, for $6 million, and Treasuries, for $5 million. Other purchases, accounting for 2%, or $2.5 million of the firm's portfolio, will be allocated to triple-A or double-A rated corporates.
Rodgers says he will selectively allocate to those three high-grade sectors because his firm favors bonds that offer limited credit concerns. The rationale for buying bullets is because callable agencies do not perform as well in a declining interest rate environment. Rodgers will look into agency names such as the Federal Farm Credit Banks, Federal Home Loan Bank, Fannie Mae and Freddie Mac. He will pick into the five-to 10-year maturity range, as he says the long-end of the curve offers only limited supply and interest rates are too low on the short end. Because the economy is growing so slowly, Rodgers believes that there is still price appreciation potential for already expensive Treasuries. Some of the potential corporate purchases include notes from General Electric (Aaa/AAA) and Merck & Co. (Aaa/AAA). Rodgers says he likes those companies for their high ratings, their attractive prices and for diversification purposes. He declined to be more specific.
The Detroit-based manager allocates 35% to mortgage-backed securities, 28% to Treasuries, 11% to financial corporates, 11% to industrial corporates, 5% to agencies, 4% to utilities bonds, 3% to asset-backed securities and 3% to cash. The fund has a 4.60-year duration versus its bogey, the 3.94-year Lehman Brothers aggregate index.
