A Ginnie Mae fund undaunted by rate outlook

OK. You've seen some of the drawbacks to Ginnie Mae funds. But remember, these funds have been paying higher rates of interest than certificates of deposit, money-market funds, and other safe and routine investments. Ginnie Maes are safe, too, especially when run by reputable mutual fund management companies.

It's just that this is one more investment where big, safe returns are not guaranteed. But is that particularly surprising?

Through March 31, the No. 1 Ginnie Mae fund in the country, according to the total returns (reinvested dividends and capital gains) ranked by Lipper Analytical Service, was the Kemper US Government Securities Fund. Its 12-month total return was 29.24 percent; its yield was 10.37 percent.

Evidence of its popularity: The fund doubled in assets to $1.8 billion over the past year and is up from $300 million in 1984.

But there is an important feature of the Kemper fund. It is not locked into Ginnie Maes. It can vary its portfolio with US Treasuries and with cash. As of this writing, it was about 15 percent in Ginnie Maes, 10 percent in cash, with the rest in seven- to 10-year Treasuries.

Portfolio manager Pat Beimford is well aware of the nationwide mortgage refinancing phenomenon. In fact, he says, ``I've prepaid my own mortgage, and I'm looking to do it again.''

Earlier this year, when the refinancing rush was making investors leery of those callable Ginnie Maes with 12 or 13 percent coupons, the fund had reduced its exposure to only 7 percent.

Now, however, Mr. Beimford thinks some of the current-coupon 15-year Ginnie Maes, at about 9 percent, are attractive.

There won't be much prepayment danger, and if interest rates don't skyrocket, that means good yields and safe principal for a long -- but not too long -- period of time.

``The whole reason government funds got started is they are a conduit for the average investor who can't buy Ginnie Maes,'' he says. ``These [funds] take away the negatives by watching interest rates and reinvesting principal payments.''

So it's not really a Ginnie Mae fund?

``When people ask, I stress that it's an actively managed intermediate government bond fund with a cash sector,'' Beimford says.