Mark MacQueen, co-founder and portfolio manager of around $4 billion at Sage Advisory Services is cutting back on his allocation to corporates and is reinvesting that money into agencies. "People are just not factoring in the risk of corporate tightening. It is all across [the range], from junk to low level investment grade," MacQueen noted.
MacQueen has been putting his money into AAA rated asset-backed securities, anything that he describes as having "real assets" behind them. "I'm putting money into senior notes of credit cards and autos," he said. MacQueen declined to mention specific names. "But I don't and haven't owned any General Motors; I got out of that when I saw it coming." MacQueen is also looking to hold a postured position that will provide protection for his clients' investments. "Our short duration target is about 25% less our benchmark," he explained. MacQueen utilizes the Lehman Brothers Corporate Intermediate Index. "We are at about three years and our benchmark is 3.65."
MacQueen has also taken off his curve flattening trade. "We've removed our barbell. We are only buying securities that won't extend, like callables and mortgage-backed securities," MacQueen stated.
His portfolio consists of around 25% Treasuries, which comprises short dated paper, for liquidity and TIPS. Additionally, he has a 25% allocation to agencies, 7% in pass throughs, 3% in CMOs, 7% in asset backed securities, 2% in CMBS, 29% in corporates and 3% in cash. He is currently overweight in TIPS, high quality financials and agencies. He classifies himself as "out of or underweight BBB credit names."
