Fort Washington Investment Advisors is looking to increase its mortgage-backed securities allocation on the view that the recent pain in the asset class is due to end. Tim Policinski, portfolio manager of $1.6 billion in taxable fixed-income, says low interest rates and reduced prepayment risk have created a window of opportunity. Fort Washington will raise the MBS allocation to 36% of the $42.5 million Touchstone core bond fund by purchasing 30-year 6.5% notes and 15-year 5.5% notes. To raise assets for the purchases, the fund will sell largely five-year Treasuries. Policinski says the strategy for the fund is broadly representative of that for the remainder of the assets he manages.
The fund recently reduced its duration by 0.5-years by selling single-A rated corporates such as TECO Energy and longer-dated Treasuries to purchase shorter-dated Treasuries.
The firm made the move to increase the quality of its portfolio, while taking gains in certain names that had outperformed the overall corporate market.
The fund at the Cincinnati-based firm has a 3.5-year duration versus its bogey, the Lehman Brothers aggregate index. It allocates 36% to Treasuries, 28% to MBS, 23% to corporates and 13% to Treasuries.