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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