Psigma Investment Management, a UK-based fund manager with £1.35 billion (€1.57 billion) of assets under management, is investing in residential mortgage-backed securities and seeking a yield of at least 8%.
The firm says the assets will benefit when interest rates start to rise.
Psigma is seeding the fund of TwentyFour Asset Management, another UK manager, to make the mortgage-related investments. The TwentyFour Asset Backed Income Fund will invest in other asset-backed securities too.
These securities will also have floating rate coupons, which will move in line with the Libor rate.
“When interest rates start to rise from current historically low levels it will be positive for residential mortgage-backed securities and asset-backed securities,” says Tom Becket, chief investment officer at Psigma Investment Management.
“This is particularly attractive given the paltry yield and lack of inflation protection offered by government bonds, investment grade corporate credit and, most recently, high yield credit.”
Becket says risks associated with investing in lower-rated, higher-yielding assets, are illiquidity and volatility. However, he adds that many of these bonds are cheap, which will compensate clients for those risks.
“Defaults in this asset class are very rare, due to their structure and quality, and even though the on-going economic environment is questionable, we believe that the opportunity far outweighs the risk,” he says.
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