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GAM Star MBS Total Return

Reasons to Invest

Large, Liquid market

The USD 8 trillion MBS market accounts for over 23% of the US bond market1, and MBS exposure should be considered a key part of any diversified global bond portfolio.

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.

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

The team has a 17-year track record of positive returns in every calendar year2 and has demonstrated its ability to perform over three interest rate 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.

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

Investment Team

The fund is managed by GAM’s MBS team, an exceptionally seasoned and stable investment team, led by Investment Directors  Gary Singleterry and Tom Mansley 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 60 years’ combined RMBS experience and a strong skillset in assessing the impact of market, interest rate and credit cycles on RMBS. They manage approximately USD 1.7 billion in assets under management.

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.

‘The depth of the team’s experience and strong skillset in assessing the impact of market, interest rate and credit cycles on residential MBS is evidenced by a 17 year strategy track record of steady, incremental returns.
Gary Singleterry, Investment Director.

Funds

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.

Resources

Fund Profile - GAM Star MBS Total Return

Risk management at GAM

Contacts

* There is no guarantee targets will be achieved.
** The strategy launched in 2002. The team joined GAM in June 2014.
*** ‘US research quarterly’, The Securities Industry and Financial Markets Association, May 2017.

GAM Star MBS Total is a sub-fund of GAM Star Fund p.l.c., registered office at George’s Court, 54-62 Townsend Street, Dublin 2, Ireland, an umbrella investment company.