Skip to main content

Mortgage Backed Securities – Tom Mansley

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.

What were the major recent events and impacts on your asset class?

Well as you know, market does tend to move slowly. It's more of a strategic rather than tactical allocation as macro factors evolve. The most significant thing has happened lately, of course, is that the Federal Reserve Bank has paused in their hikes and the new mantra of higher for longer rather than more and multiple hikes is what's prevalent in the marketplace now. So a few weeks ago, even we had over 100 basis points of cuts built into the forward curve. Well, that's simply not going to happen. And the market realises that and that, hence the rise in rates. What's that doing to home prices? Basically nothing. We've had a very slight pullback about 2% in the last year, middle of last year. And today we're actually higher than that. So we've stabilised and resume the mild increase as the supply and demand factors overwhelm the higher rate. Again, a massive shortage of housing in the United States and a lot of demand for it.

What can your asset class offer in the current environment?

Simply put very stable cash flows. And since the yields are, the base yields going up everywhere, of course. However, spreads in our space are relatively wide, not as wide as the Covid peak, but certainly out there, which results in a relatively high overall base return.

What is your outlook in the near and medium term?

We're looking for continued stability. Consumer credit is still very strong. Of course, we're coming off of record low delinquencies and foreclosures and things of that nature. So of course that's going to tick up as we move forward but still remain far below average. So consumer credit is strong. Remember this is a fixed rate mortgage regime. So people really don't care if the market rate goes up. They've already got their nice little mortgage which is at a very low rate. It's a good time to collect the yield. We have that solid credit upon which to build and just sit and wait and collect a really nice yield. Longer term, I would also look for spread tightening. What we've got is a low supply of mortgage backed securities going forward. Higher rates, of course, they put downward pressure on supply in terms of refinancing in terms of new purchases. Because as all that slows down, there's less new product being created, yet there's still demand in fixed income for those cash flows. And therefore the spreads should come in and hopefully get some sort of capital gain.

Is there one chart you’re currently monitoring closely?

I would say no. It's more of a mosaic at this point. So we're looking at the macro and the micro. In terms of macro, everything looks pretty good for consumer credit, particularly in secured by asset at this point in time. And at the micro, the credit is good. Remember a vast majority of our holdings today are mortgages that were issued prior to 2008. They've been in their homes for a very long time. Demonstrated ability to pay. You've got a home price that's much higher than it was back in 2008 or prior, and a mortgage, which is much lower, providing a nice big equity buffer. And finally, the, I would say 95% of the portfolio is senior in the capital structure. So you are first in line to get your money back on a solid credit to begin with, which is secured by an asset. So that looks pretty good.

Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is not an indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.

No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Past results are not necessarily indicative of future results. Investors could lose some or all of their investments.

References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.

This presentation contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

Tom Mansley

Investment Director

Contact us - we'd love to hear your feedback

Active Thinking

03:02 min watch

Multi Asset Solutions Central Europe - Andrea Quapp
19 October 2023

Andrea Quapp highlights the fact both stocks and bonds are currently attractively rated, which is presenting her with asset allocation opportunities. She also mentions the importance of innovations such as artificial intelligence and, specifically for Switzerland, the appeal of the Swiss real estate market.

Active Thinking

11:16 min watch

Private Shares – Christian Munafo
19 October 2023

Christian Munafo of Liberty Street Advisors notes an improvement in market conditions for investors in late-stage private companies; many of these companies are similar to what public market investors used to seek in small to mid-cap growth stocks. He also stresses that many of them are not just high growth, they are also at or approaching profitability.

Active Thinking

03:54 min watch

Japan Equities – Goro Takahashi
19 October 2023

Goro Takahashi describes the key factors that influenced the Japanese market over the third quarter, particularly the main stock exchange’s ongoing initiative to improve listed companies’ financial indicators, and the areas he thinks investors should focus on into the turn of the year.

Active Thinking

11:16 min watch

Sustainable Investing – Stephanie Maier
19 October 2023

Stephanie Maier updates us on the major recent developments in sustainable investing, the importance of sustainability funds labelling, and the progress update on the 17 Sustainable Development Goals (SDGs).

Active Thinking

10:54 min watch

Multi Asset Solutions – Julian Howard
19 October 2023

Julian Howard reflects on the combination of stretched valuation and a tight equity risk premium that has made equities less attractive in the short term. However, it does not undermine the very long-term case for equities, in his view. He also notes the long-term structural case for China.

Active Thinking

10:36 min watch

Systematic Core Macro
19 October 2023

GAM Systematic’s Dr Chris Longworth and Guglielmo Mazzola highlight bond sell offs and a commodities rally as significant market events, and note that systematic investment approaches can help provide investors with much-needed diversification for their portfolios.

Active Thinking

03:20 min watch

Emerging Market Debt – Paul McNamara
19 October 2023

In his latest video update, Paul McNamara discusses how factors in major developed markets have had a major influence on emerging market (EM) debt, how EM fundamentals differ from their developed peers and offers his outlook for the asset class.

Active Thinking

04:58 min watch

Mortgage Backed Securities – Tom Mansley
19 October 2023

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.

Active Thinking

07:29 min watch

Credit Opportunities – Gregoire Mivelaz
19 October 2023

Atlanti’s Gregoire Mivelaz highlights the three major events of Q3 that impacted his investment universe: earnings, bond call dates and the reopening of primary markets. He believes given we are now in a late credit cycle, credit quality matters for investors. And he notes that market mispricing is continuing to lead to opportunities.

Active Thinking

05:09 min watch

Global Rates – Adrian Owens
19 October 2023

Adrian Owens updates on his latest thoughts, reflecting on the backup in bond yields, the importance of risk management in mitigating exogenous shocks, and the opportunities created by ongoing central bank activity.

Active Thinking

08:06 min watch

Asia/China Growth Equities – Jian Shi Cortesi
19 October 2023

Jian Shi Cortesi notes that weak sentiment in China is keeping Chinese equities at very low valuations, due to the soft economic growth, real estate drag and the ongoing China-US rivalry. However, she is optimistic about long-term prospects, with the conviction that in the long term earnings growth will drive stock prices.

Active Thinking

05:53 min watch

European Equities - Niall Gallagher
19 October 2023

Niall Gallagher shares his views on the implications of rising real bond yields and why he thinks central banks will continue to have to fight inflation rather than deflation. Niall also discusses the sheer scale of capital required to enable the energy transition, and some of the companies he believes stand to capitalise.

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.

Active Thinking
Active Thinking
05 April 2023

At GAM Investments’ latest Active Thinking forum, David Dowsett reflects on a calmer week in markets while Tom Mansley outlines why he believes the US consumer remains resilient in the face of recession and the why the underlying supply-demand mismatch is supportive for the US housing market.

Active Thinking
Active Thinking
08 December 2022

At GAM Investments’ latest Active Thinking forum, David Dowsett considers whether the recent market rally will prove sustainable, while Tom Mansley argues that US consumer credit remains resilient, supporting mortgage-backed securities. Ernst Glanzmann reflects on the ongoing pendulum-like effect of the pandemic on Japanese equities and how a stronger yen and easing commodity prices could be supportive of the asset class going forward.

Contacts

Please visit our Contacts and Locations page.