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Tom Mansley reflects on strong house prices despite the rise in rates, and highlights the stability and yield offered by the asset class.
What were the major recent events and impacts on your asset class?
Well, the most significant events of the second quarter were, first of all, the Federal Reserve (Fed) pausing in its interest rate rise program – we think that they're almost done, but not quite, so there'll be a little more left to do to the sticky inflation and more specific to our strategy, the stabilisation of home prices in the United States. Home prices were up again the prior month, which brings them to relatively flat on a 12-month basis and only down about 2% from the absolute peak back in June of 22, which is consistent with what we've been saying and what we continue to think, which is that the rise in rates causes an affordability problem that's going to push prices down slightly. However, there is a tremendous amount of demand, very little supply, and that's going to dominate the medium to long term. And that's why we're seeing the stabilisation after even such a mild decline and we think that we're back into that nice, stable home price zone again.
What can your asset class offer in the current environment?
Well the asset class tends to generate very stable underlying cash flows. In general, the portfolio composition that we have today, which consists of very seasoned mortgages, makes that even more so. So, the really stable underlying cash flows in a time of potential instability, which is where we are today and across various financial markets, means that this asset class can provide that low vol, nice yield, the stability that a lot of people are looking for and in a non-correlated manner versus other assets.
What is your outlook in the near and medium term?
The outlook is that this is a very good time to collect yield. The portfolio today yields in excess of 7% and we're going to be very happy to collect that yield, particularly since we're able to do that with a very conservative portfolio. And when I say that, what I mean is we're not concerned about recession potential or anything of that nature because the very seasoned nature of the underlying assets means we have a very high house prices versus the purchase because the purchase was 15 years ago. Also, the loan amount is much smaller today, so the loan is secured by a very high value asset. Also, the borrowers have that demonstrated ability to pay and they have been doing so through prior recessions such as the Great Financial Crisis. Put that together with the fact that over 95% of the portfolio is the most senior claim in the capital structure. So we have a lot of senior bonds in the portfolio, which means you are first in line to get all of your principal, all of your interest. That's the kind of conservative portfolio we put together, which means I think it's time to collect some really good yield.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is not an indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.
No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Past results are not necessarily indicative of future results. Investors could lose some or all of their investments.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
This presentation contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is not an indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.
No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Past results are not necessarily indicative of future results. Investors could lose some or all of their investments.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
This presentation contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
Active Thinking
Multi Asset Solutions Central Europe - Andrea Quapp
19 October 2023
Andrea Quapp highlights the fact both stocks and bonds are currently attractively rated, which is presenting her with asset allocation opportunities. She also mentions the importance of innovations such as artificial intelligence and, specifically for Switzerland, the appeal of the Swiss real estate market.
Active Thinking
Private Shares – Christian Munafo
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Christian Munafo of Liberty Street Advisors notes an improvement in market conditions for investors in late-stage private companies; many of these companies are similar to what public market investors used to seek in small to mid-cap growth stocks. He also stresses that many of them are not just high growth, they are also at or approaching profitability.
Active Thinking
Multi Asset Solutions – Julian Howard
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Julian Howard reflects on the combination of stretched valuation and a tight equity risk premium that has made equities less attractive in the short term. However, it does not undermine the very long-term case for equities, in his view. He also notes the long-term structural case for China.
Active Thinking
Systematic Core Macro
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GAM Systematic’s Dr Chris Longworth and Guglielmo Mazzola highlight bond sell offs and a commodities rally as significant market events, and note that systematic investment approaches can help provide investors with much-needed diversification for their portfolios.
Active Thinking
Active Thinking
Credit Opportunities – Gregoire Mivelaz
19 October 2023
Atlanti’s Gregoire Mivelaz highlights the three major events of Q3 that impacted his investment universe: earnings, bond call dates and the reopening of primary markets. He believes given we are now in a late credit cycle, credit quality matters for investors. And he notes that market mispricing is continuing to lead to opportunities.
Active Thinking
Asia/China Growth Equities – Jian Shi Cortesi
19 October 2023
Jian Shi Cortesi notes that weak sentiment in China is keeping Chinese equities at very low valuations, due to the soft economic growth, real estate drag and the ongoing China-US rivalry. However, she is optimistic about long-term prospects, with the conviction that in the long term earnings growth will drive stock prices.
Active Thinking
European Equities - Niall Gallagher
19 October 2023
Niall Gallagher shares his views on the implications of rising real bond yields and why he thinks central banks will continue to have to fight inflation rather than deflation. Niall also discusses the sheer scale of capital required to enable the energy transition, and some of the companies he believes stand to capitalise.
Active Thinking
Active Thinking
Active Thinking: Millennials shaping the housing market
04 April 2024
In the dynamic realm of real estate, the tale of housing demand unfolds a narrative shaped by generational shifts and economic forces. Tom Mansley, Investment Director and specialist in mortgage and asset backed securities (MBS and ABS), guides you through the chapters.
Active Thinking
Active Thinking
05 April 2023
At GAM Investments’ latest Active Thinking forum, David Dowsett reflects on a calmer week in markets while Tom Mansley outlines why he believes the US consumer remains resilient in the face of recession and the why the underlying supply-demand mismatch is supportive for the US housing market.
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