Mortgage-Backed Securities Fixed Income

Philosophy

We believe the mortgage-backed securities sector is a high-quality asset class that provides excellent long-term, risk-adjusted returns. Value-added returns can be achieved through active subsector rotation combined with disciplined risk management. Our approach is to add value by:

  • Effectively using quantitative analytics to determine relative value
  • Employing housing and loan market analysis to assess credit fundamentals, borrower options, and the impact on prepayment models
  • Managing risk through best execution, key rate duration, extensive credit and structure analysis, and liquidity 

Process

Large Cap Value Chart

Benchmark: Barclays Fixed Rate MBS Index 

Our Mortgage-Backed Securities fixed income strategy follows a team-oriented, disciplined, top-down investment process. The first step is to formulate a market outlook to derive yield curve positioning, duration targets, and housing market outlook. We determine subsector weightings based on relative value and mean reversion opportunities. After determining subsector weightings, we conduct extensive analysis on each security, including cash flow analysis, structural analysis that includes credit enhancements, and loan pool analysis. Finally, we construct the portfolio within a strategic framework that includes verifying strategic intent, key rate duration analysis, and convexity profile.