Opportunistic Multi-Sector Securitized
The Strategy seeks to outperform LIBOR by 500 bps or the S&P Performing Loan Index (gross of fees) over a market cycle.
There is no guarantee that any investment objective can be achieved.
Schroder Opportunistic Multi-Sector Securitized Strategy uses a research-driven approach seeking to capitalize on opportunities available within the securitized markets with a focus on sectors where the team believes it has a competitive advantage. The strategy invests in a portfolio of higher yielding mortgage-backed securities (MBS) and asset-backed securities (ABS). The strategy seeks to capture excess returns typically available in less transparent markets, and to provide capital where regulation and complexity have created inefficiencies. Inefficiencies driven by ratings, financing gaps, liquidity, and regulation continue to develop as the diverse securitized universe changes. The changes can be simple, such as limitations to the buyer base, or more complex such as opportunities driven by distress.
We believe our research-oriented approach is an ideal way to generate income, returns uncorrelated to rising interest rates, and provide diversification versus typical benchmark exposures.
The strategy is managed by a lead portfolio manager, Michelle Russell-Dowe and supported by a team of 14, including portfolio managers and analysts.
The size and complexity of the securitized market leads to inefficiencies that can be exploited. We believe that an in-depth understanding of fundamental factors combined with a proprietary research that includes a detailed assessment and modeling of security-specific cash flows is the foundation of generating return.
Our investment process is summarized in four steps:
- We identify fundamental and technical factors that we expect to drive performance for the overall securitized market and specific sectors by assessing regulation, access to credit, interest rates, prepayment trends and delinquency rates.
- We then apply our proprietary models to identify the risk-profile groupings that are consistent with our view and represent areas of opportunity. This comprehensive analysis incorporates a quantitative assessment of the option value of each bond and stress testing of the possible changes along a continuum of variables, such as asset prices, interest rates, borrower behavior, servicer behavior, and regulation that could influence these variables.
- We also analyze each security’s cash flow and capital structure to determine factors or combinations of factors that contribute to security strength or weakness. Finally we look beyond averages and models to analyze other factors that might impact the performance of the assets. We compile extensive information and details on loan originators and servicers using data gathered through multiple systems, site visits, competitor assessments and frequent discussions we personally conduct. This is vital to our analysis as two bonds with very similar collateral can experience vastly different performance and cash flow timing based on the specific tendencies of the originator and servicer.
- Lastly, Portfolio construction aggregates relative value decisions and ensures combined risks are appropriate across four main attributes: liquidity, credit, volatility and duration. Target levels of risks are determined by a combination of research-led conviction on the environment and the level of compensation (pricing). Portfolios are constructed and/or adjusted based on our dynamic assessment of value, in the context of a client’s risk tolerance, and in consideration of liquidity requirements.
Using this framework, the team identifies preferred asset class and sector exposures, as well as preferred collateral types and counterparty exposures within each targeted risk profile that offer the best value. This integrated approach allows us to efficiently execute changes to portfolio positioning should we see changes to potential risks.
- Research-driven, opportunity based investment process
- Industry leading proprietary analytics and models
- Investments are chosen based on risk reward and seek to capitalize on inefficient ratings
- Sector allocation and security selection are the main sources of generating return
- Collaborative, interactive approach to evaluate opportunities and relative value
- Separate Accounts