The Strategy seeks to outperform the Bloomberg Barclays US Securitized Index by 100 basis points (gross of fees) or US 3-Month LIBOR + 100 – 300 basis points (gross of fees) over a market cycle.
There is no guarantee that any investment objective can be achieved.
Schroder Enhanced Securitized Strategy uses a research-driven approach seeking to generate return by investing in mortgage-backed and asset-backed securities, with a focus on sectors where the team believes it possesses a competitive advantage. The strategy seeks to capitalize on cyclical opportunities among the wide range of sectors and assets. The team seeks to identify sectors and securities that offer the most attractive return profile relative to their annualized volatility, liquidity and key risk factors. We believe that our process for identifying undervalued sectors, and cash flows with performance upside, is the ideal process to capture value. The strategy can be managed to a broad securitized index (such as the Bloomberg Barclays US Securitized Index) or without duration, generally hedged to a cash (LIBOR) benchmark.
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, in a relative value framework
- Sector allocation and security selection are the main sources of generating return, the LIBOR version of the strategy targets income as the largest source of return
- Collaborative, interactive approach to evaluate opportunities and relative value
- Separate Accounts