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GAM Star MBS Total Return

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GAM Star MBS Total Return seeks to deliver strong absolute returns through investing primarily in US residential mortgage-backed securities (RMBS). The strategy offers a differentiated fixed income proposition, with low overall volatility, modest effective duration and low correlation to traditional fixed income and equity markets. GAM Investments’ specialist MBS investment team has successfully managed dedicated MBS mandates since 2002.

Active Thinking Video

Tom Mansley notes that US home prices remain supported by strong demand amid rate hikes, the resilience of mortgages issued prior to 2008 and the forward looking for spread tightening.

We’re looking for continued stability. Consumer credit is still very strong. We have that solid credit upon which to build and just sit and wait and collect a yield.

Our Edge

Differentiated, highly active credit approach

The fund seeks attractive, risk-adjusted returns focusing on non-agency mortgages with an average credit rating of BBB and no or low interest rate duration.

Solid track record

20-year track record of steady, incremental return generation. Seasoned, stable investment team with a strong skillset in assessing impact of market, interest rate and credit cycles

Highly Skilled

Active pre-positioning of a high conviction portfolio for changes in the market environment allows the team to access areas of frequent mispricing.

downside protection

The team builds a diversified portfolio of attractively priced bonds, complemented by derivatives for the active management of risk exposure. They continually reassess both the market and portfolio across the market cycle, with a strict focus on downside risk management.

Investment Team

The fund is managed by GAM’s MBS team, an exceptionally seasoned and stable investment team, led by Investment Directors Tom Mansley and Gary Singleterry and Investment Manager Chien-Chung Chen. The team joined GAM in June 2014 from specialist MBS manager Singleterry Mansley Asset Management, based in New York.

The team has over 70 years’ combined RMBS experience and a strong skillset in assessing the impact of market, interest rate and credit cycles on RMBS.

Their depth of experience in all aspects of portfolio, trading and risk management, including derivatives creation and structuring, dates back to the origins of the MBS market as an investable asset class.

Our team has over 70 years’ combined RMBS experience and takes an unconstrained, macro-driven total return approach, underpinned by our long-established investment process.
Gary Singleterry, Investment Director.
Tom Mansley
Investment Director
Gary Singleterry
Investment Director
Chien-Chung Chen
Investment Manager

Philosophy & Process

Investment philosophy

The team believes the inherent complexity in the US MBS market provides opportunities for specialist RMBS investors to add value. They believe an unconstrained, macro-driven total return approach, underpinned by a long-established process, is key to understanding how changes in the drivers of three key variables – credit dynamics, interest rates and mortgage prepayment rates – impact underlying risks in the market. As the structure of MBS instruments gets more complex, so does the embedded risk, together with the nuances of how each key variable impacts pricing behaviour. These under-researched, often mispriced instruments present attractive, alpha-generating opportunities.

Investment process

A combination of top-down market analysis and fundamental, bottom-up security selection ensures risk is actively managed in a diversified portfolio. The team conducts market analysis to form views on key economic variables, which determine allocation to different segments of the RMBS market and drive the focus of fundamental, bottom-up security analysis. Securities selected typically have attractive absolute and relative valuations, desirable interest rate sensitivity characteristics, robust underlying collateral, and strong liquidity and pricing features. Ongoing risk management and monitoring using a range of risk modelling and stress testing techniques ensure the portfolio is aligned with the team’s market views, including modelling the impact of parallel and non-parallel shifts in interest rates to stress test the portfolio.

1

Market analysis

  • Form views on interest rate cycles, credit environment, prepayment expectations and housing market
2

Security selection

  • Determine relative attractiveness of segments and conduct fundamental analysis of securities within segments
3

Portfolio construction

  • Diversified portfolio reflects views on credit risk, interest rate risk and prepayment risk
4

Risk monitoring

  • Ongoing risk management to review consistency with market views, exposure and diversification

Reasons to Invest

Highly liquid, diversified market

The USD 10.8 trillion MBS market accounts for ~21%of US fixed income market1, and MBS exposure should be considered a key part of any diversified global portfolio.

1 Securities Industry and Financial Markets Association (SIFMA), December 2021.

Wide spectrum of instruments

The scale of the asset class ensures a diverse range of instruments suited to various risk appetites and market environments, enabling skilled investors to add value versus the market.

Attractive yields

MBS typically offer higher yields than US Treasuries and corporate bonds of comparable maturity and credit quality. Thus, compelling yields can be achieved without having to sacrifice credit quality.

Protection

Certain types of MBS have the potential to protect a fixed income portfolio from rising interest rates – such protection is not always possible with traditional bonds.

Key Risks

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Counterparty risk / Derivatives

If a counterparty to a financial derivative contract were to default, the value of the contract, the cost to replace it and any cash or securities held by the counterparty to facilitate it, may be lost.

Credit Risk / Debt Securities

Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.

Credit Risk / Non-Investment Grade

Non-investment grade securities, which will generally pay higher yields than more highly rated securities, will be subject to greater market and credit risk, affecting the performance of the Fund.

Credit Risk / ABS / MBS

The issuer of mortgage or asset-backed securities may not receive in full the amounts owed to them by un- derlying borrowers, affecting the performance of the Fund.

Interest Rate Risk

A rise or fall in interest rates causes fluctuations in the value of fixed income securities, which may result in a decline or an increase in the value of such investments.

Liquidity Risk

Some investments can be difficult to sell quickly which may affect the value of the Fund and, in extreme market condi- tions, its ability to meet redemption requests.

Leverage Risk

Derivatives may multiply the exposure to underlying assets and expose the Fund to the risk of substantial losses.

Our Thinking

Active Thinking
Active Thinking: Millennials shaping the housing market
04 April 2024

In the dynamic realm of real estate, the tale of housing demand unfolds a narrative shaped by generational shifts and economic forces. Tom Mansley, Investment Director and specialist in mortgage and asset backed securities (MBS and ABS), guides you through the chapters.

Outlook 2024
Outlook 2024: Tom Mansley (Mortgage Backed Securities)
December 2023

Mortgage-Backed Securities – The senior bonds we focus on are backed by robust mortgages that have substantial home equity and low default risk

Active Thinking
Active Thinking
15 September 2023

At GAM Investments’ latest Active Thinking forum, Tom Mansley assesses the current situation in the US housing market and discusses the ongoing appeal of seasoned mortgage-backed securities.

Our Thinking

Fund Information

Contact Us

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Speak to one of our client directors

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Contacts

Please visit our Contacts and Locations page.

GAM Star MBS Total is a sub-fund of GAM Star Fund p.l.c., registered office at Dockline, Mayor Street, IFSC, Dublin, D01 K8N7, Ireland, an umbrella investment company.

Disclaimer: Past performance is not an indicator of future performance and current or future trends. The indications could be based on figures denominated in a currency that may be different from the currency of your residence country and therefore the return may increase or decrease as a result of currency fluctuations. Capital at risk: all financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Any reference to a security is not a recommendation to buy or sell that security.

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