Agency mortgage-backed securities: An alternative opportunity set for absolute return outcomes

With continued low yields and modest global growth, investors looking for alternative ways to structure their fixed income portfolios may consider absolute return strategies, which target a positive return irrespective of market direction. This paper details the use of US agency mortgage-backed securities (MBS) to deliver an absolute return solution, with features such as a government guarantee, high levels of liquidity, and diversification against risk assets.

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The views expressed represent the Manager's assessment of the market environment as of May 2018, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Fixed income securities can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder a issuer’s ability to make interest and principal payments on its debt.

Interest payments on inflation-indexed debt securities will vary as the principal and/or interest is adjusted for inflation.

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

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