STOCKPICKER
WHAT I BOUGHT LAST
GAM Star MBS Total Return
The Share Centre’s Sheridan Admans says mortgage-backed
securities provide significant diversification opportunities, despite
their unfavourable reputation
FLEET
of FOOT
F
OR SOME TIME NOW I HAVE
BEEN SEARCHING FOR
ASSETS that deliver high
risk-adjusted returns but with a
low correlation to the rest of the
market. Assets that provide ample liquidity,
duration flexibility and exposure to US
growth in areas where active management can
really add value.
I have therefore introduced GAM Star
MBS Total Return to our TC Share Centre
Multi Manager Cautious fund, as its
management team’s extensive experience
should allow it to successfully navigate the
current interest-rate cycle.
Mortgage-backed securities, or MBSs
as they are more commonly known,
were unfamiliar to UK investors until
the financial crisis. While the asset class
remains unpopular, it provides significant
opportunities that are hard to overlook
when constructing a diversified portfolio.
MBSs represent approximately 24 per cent
of the US fixed income market. It is possible
to obtain a significantly higher yield from
MBSs than that offered by US treasuries
with similar maturities, including higher
quality agency and non-agency bonds.
Agency refers to government-supported
issuers of mortgages such as Freddie
Mac and Fannie Mae which guarantee
mortgages. Non-agency issuers are those
that are not guaranteed. Arguably higher
yields come with little or no additional risk
from holding positions in both Freddie Mac
and Fannie Mae. The MBS market is highly
liquid with approximately $200bn traded
daily and it has a size of around $8trn.
The US housing market has been
recovering since falling from its peak in
2008 and has seen homeowner vacancy
rates fall significantly, single-family housing
under construction move below its long-run
average, homeownership rates start to pick
SAINTS’ James Dow highlights three stocks whose capital-light business models should
help them deliver consistent earnings growth over the long term
A
FUNDAMENTAL TENSION EXISTS IN
MANY COMPANIES between dividends
and growth. Most obviously this occurs in
business models that require large
investments of capital to increase
production. Oil producers are the classic example: the
natural decline rate of oil fields forces managers of these
companies to reinvest a large chunk of profits every year
just to keep their output flat, let alone grow.
US-BASED SOFTWARE
BUSINESS CH ROBINSON
matches companies that need to
ship freight with small trucking
firms across the US. Growth in
network volume occasionally
requires the company to build data
centres, but servers are cheap, as is
land in rural Minneso