Wednesday, July 24, 2013

Flash Update - Liquid Real Estate Portfolio - 7/24/13

Why some non-agency RMBS and CMBS traders were well prepared for the June selloff in bonds.



Comparing our June returns to the agency mortgage space was a tale of alpha and beta.  Our Liquid Real Estate Portfolio generated alpha while being hedged and lost approximately 1%.  Some mortgage REIT funds delivered a lot of negative beta with double-digit losses.  The selloff in RMBS non-agency bonds was minor as most Subprime, Pay Option ARM or Alt-A bonds are credit sensitive and not interest rate sensitive; they did lose 3-4% in value in June though.  The CMBS market in June was also interesting as bonds sold off anywhere from 4-8 points depending where they were in the capital structure.  The difference in our return and other long mortgage or long fixed income strategies is that we are hedged!  In some cases, we saw our interest rate hedges in June making 1% or more and credit hedges contributing positively in varying amounts.  The large portfolio of IO’s was a positive contributor in some cases, as these securities are very positively convex and tend to appreciate in value as rates are rising.  We believe the IO portfolio is well positioned to see outsized returns in the near and medium-term, while the normalizing of the greatest re-fi wave in history commences.  The outlook is very positive for all  strategies in the Liquid Real Estate Portfolio as fundamentals in both RMBS and CMBS continue to improve, and the higher interest rate environment going forward is positive for the IOs. 

Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com 
203-863-1500
@Tradex_Global

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