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.
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.
Form views on interest rate cycles, credit environment, prepayment expectations and housing market
Determine relative attractiveness of segments and conduct fundamental analysis of securities within segments
Diversified portfolio reflects views on credit risk, interest rate risk and prepayment risk
Ongoing risk management to review consistency with market views, exposure and diversification
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.
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.
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.
Bonds may be subject to significant fluctuations in value. Bonds are subject to credit risk and interest rate risk.
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.
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.
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.
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.
Derivatives may multiply the exposure to underlying assets and expose the Fund to the risk of substantial losses.