A healthy housing market is making mortgage-backed bonds all the more attractive, said Greg Parsons, CEO of Semper Capital Management. ‘Economic metrics supporting the sector continue to move in the right direction, especially with home price appreciation around 5% and home prices back to 2006 levels with better home affordability,’ said Parsons. Parsons’ firm is behind the Semper MBS Total Return Fund , which received a 5-Star overall rating out of 247 nontraditional bond funds tracked by Morningstar. The Semper MBS Total Return Fund is up 4.3% thus far in 2016, according to Morningstar. The $476 million fund has returned an average of 7.1% annually over the past three years, outpacing 97% of its rivals Morningstar’s nontraditional bond category. The fund sports a healthy trailing twelve month yield of 5.8%, according to Morningstar. Parsons sees strong risk adjusted returns in the structured credit markets, specifically non-agency residential mortgage-backed securities (RMBS). He said the combination of strong fundamentals and technical dynamics will continue to support prices. In Parsons’ view, structured credit offers a strong value proposition – both absolute and relative – within the bond market because it offers healthy interest income with limited exposure to global macro events, direction of interest rates, or credit risk. Based on Semper’s analysis, structured credit should generate 5%-plus ‘loss adjusted yield’ with an anticipated effective duration of around 1.5 years. As a result, Parsons said RMBS makes for a strong compliment or substitute for traditional high yield in a portfolio. Parsons also pointed out that the quality of assets have materially improved since the mortgage meltdown in 2008, which should reassure investors that past excesses have been wrung out of the market. ‘We know what we are buying now and our models are far more accurate,’ said Parsons.
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