alphacentric income opportunities fund · the investment return and principal value of an...
TRANSCRIPT
AlphaCentric Income Opportunities Fund
October 27th, 2020
IOFAX, IOFCX, IOFIX
Third Quarter Investor Call
2
Treasury BillsTreasuries
Barclays AggU.S. Corp. IG
EM Sovereign $ BondsWTI Crude
EM Corp. $ BondsAll Global CreditU.S. Lvrged Loans
Euro Corp. HYEuropean Stocks
U.S. Corp. HYGold
Euro Corp. IGWorld Stocks
Asia-Pacific StocksS&P 500
CommoditiesEM Stocks
IOFIX
Treasury BillsTreasuries
Barclays AggU.S. Corp. IG
EM Sovereign $ BondsWTI Crude
EM Corp. $ BondsAll Global Credit
U.S. Lvrged LoansEuro Corp. HY
European StocksU.S. Corp. HY
GoldEuro Corp. IGWorld Stocks
Asia-Pacific StocksS&P 500
CommoditiesEM Stocks
IOFIX
Q3 Continues The Sharp Reversal
Note: Performance are calculated as daily total return including dividends as of 9/30/20. Results may differ substantially over time. Data represents past performance and does not guarantee future returns. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. Source: Bloomberg as of 9/30/20. IOFIX uses ticker “IOFIX US Equity", Treasury Bills "LD20TRUU Index", Treasuries "LUATTRUU Index", U.S. Leveraged Loans "IBOXLTRI Index", Barclays Aggregate "LBUSTRUU Index", Gold "XAU BGN Curncy", Emerging Mkt Corporate $ Bonds "BSEKTRUU Index", U.S. Corporate High Yield "LF98TRUU Index", All Global Credit "LGDRTRUU Index", U.S. Corp. Investment Grade "LQD US Equity", Emerging Mkt Sovereign $ Bonds "BSSUTRUU Index", S&P 500 "SPX Index", Euro Corporate Investment Grade "SPEZICET Index", Euro Corporate High Yield "ENHAHYEU Index", World Stocks "MXWO Index", Commodities "BCOM Index", Asia-Pacific Stocks "MXAP Index", EM Stocks "MXEF Index", European Stocks "BE500 Index", WTI Crude "CL1 Comdty“.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
-36.18%
-23.57%
-23.53%
-19.60%
-19.17%
-20.94%
-7.55%
3.95%
-12.68%
-24.60%
-11.30%
-13.68%
-4.68%
-8.86%
-66.46%
-11.61%
-2.97%
3.15%
8.20%
0.63%
-75% -60% -45% -30% -15% 0% 15%
Q1 2020
20.97%
18.17%
5.04%
20.54%
15.99%
19.57%
7.28%
12.92%
10.18%
16.65%
4.17%
9.42%
7.68%
10.65%
91.75%
10.93%
9.72%
2.90%
0.48%
0.02%
0% 20% 40% 60% 80% 100%
Q2 2020
10.41%
9.65%
9.04%
8.93%
8.65%
8.05%
6.13%
5.89%
4.60%
4.47%
4.26%
4.18%
3.06%
2.68%
2.42%
2.17%
0.82%
0.62%
0.17%
0.04%
0% 2% 4% 6% 8% 10% 12%
Q3 2020
3
+27.26%+22.71%
+36.42%+38.90%
+93.71%
80
100
120
140
160
180
200
220
9/30/15 9/30/16 9/30/17 9/30/18 9/30/19 9/30/20
Tota
l Ret
urn
(inde
xed
to 1
00)
Income Opportunities Fund (IOFIX) Barclays Aggregate Baa Index Barclays US High Yield S&P 500
Income Opportunities Fund (IOFIX)
Barclays Aggregate Baa Index
Barclays U.S. High Yield S&P 500
Q3 2020 +10.41% +0.62% +2.10% +4.60% +8.93%
1 Year -13.11% +6.98% +6.96% +3.25% +15.14%
3 Year +0.62% +16.56% +20.36% +13.16% +41.51%5 Year +27.26% +22.71% +36.42% +38.90% +93.71%
Performance Comparison Last 5 Years
Note: Performance are calculated as daily total return including dividends as of 9/30/20. Results may differ substantially over time. Data represents past performance and does not guarantee future returns. Current performance may be lower or higher than the performance data quoted. The investment return and principal value of an investment will fluctuate, therefore, an investor's shares, when redeemed, may be worth more or less than their original cost. You cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges. To obtain the most recent month end performance information or the funds prospectus please call the fund, toll free at 1-844-ACFUNDS (844-223-8637). Source: Bloomberg. Barclays Aggregate “LBUSTRUU Index”, Barclays US High Yield “LF98TRUU Index”, S&P 500 “SPX Index”, Baa Index “LUBATRUU Index”. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Total Return: September 30, 2015 to September 30, 2020
4
IOFAX Performance
There is no assurance that the Fund will achieve its investment objective which is current income. The Fund’s maximum sales charge for Class “A” shares is 4.75%. Total annual fund operating expenses are 1.93%, 2.68%, and 1.68% for Class A, C, and I shares respectively. Investments in mutual funds involve risks. Performance is historic and does not guarantee future results. Investment return and principal value will fluctuate with changing market conditions so that when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month end performance information or the funds prospectus please call the fund, toll free at 1-844-ACFUNDS (844-223-8637). You can also obtain a prospectus at www.AlphaCentricFunds.com.Bloomberg Barclays U.S. Agg. Bond Index is used to represent the U.S. corporate bond market. Index does not directly correlate to the AlphaCentric Fund. RMBS and ABS securities have different characteristics from investment grade bonds. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
-13.36%
-0.02%
4.69% 5.95% 6.98%5.24% 4.18% 3.96%
-17.46%
-1.62%
3.67% 4.99%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Class A 1YR Class A 3YR Class A 5YR Class A SinceInception
BarclaysAgg. 1YR
BarclaysAgg. 3YR
BarclaysAgg. 5YR
BarclaysAgg. SinceInception
Class A w/Load 1YR
Class A w/Load 3YR
Class A w/Load 5YR
Class A w/Load SinceInception
AlphaCentric Income Opportunities Fund:1-Year, 3-Year, 5-Year and Since Inception Annualized Return (5/28/15-9/30/20)
5
$12 B
($11 B)
($52 B)
($11 B)
$11 B
$9 B$13 B $15 B
$20 B
$12 B $14 B$16 B
$14 B
$8 B$12 B
$4 B $0 B
(60)
(50)
(40)
(30)
(20)
(10)
0
10
20
30
2/19 3/4 3/18 4/1 4/15 4/29 5/13 5/27 6/10 6/24 7/8 7/22 8/5 8/19 9/2 9/16 9/30
WoW
Glo
bal F
und
Flow
s ($
B)
AGG Type Mortgage Backed IG Credit High Yield
Historic Fund Outflows Across Bond Universe
Source: Source: EPFR, Haver Analytics, Goldman Sachs Global Investment Research. Data as of 9/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Weekly Global Fund Flows: February 2020 to September 2020
6
$2.4 B
$11.5 B
$5.3 B
$3.5 B
$5.3 B
$2.7 B
$581 M
$1.77 B$1.27 B
$714 M $746 M $452 M$564 M $605 M
$
$2
$4
$6
$8
$10
$12
$
$2
$4
$6
$8
$10
$12
3/2 3/18 4/3 4/22 5/8 5/27 6/12 6/30 7/17 8/4 8/20 9/8 9/24
Trade Volume ($B)Tr
ade
Volu
me
($B)
Daily Trade Volume January & February Avg. Daily Trade Volume Monthly Daily Average
Source: TRACE FINRA. Data as of 9/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Daily and Average Trade Volume: Q3 2020
Non-Agency RMBS Daily Trade Activity Has Appeared to Normalize
7
Historic Govt Stimulus Prompt Support Excluded Non-Agency RMBS
Source: Barclays and American Action Forum. Data as of 9/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Govt Related
High Yield
CMBS
ABS
MBS
US Corporates-IG
Sector Spreads: YTD Low, High, and 9/30 Close Federal Reserve Stimulus Timeline
3/15 • Fed Funds Rate Cut to Zero• ~800bn Quantitative Easing Announced
3/17 • Creation of a Commercial Paper Funding Facility (CPFF)• Creation of a Primary Dealer Credit Facility (PDCF)
3/18 • Creation of a Money Market Mutual Fund Liquidity Facility (MMLF)
3/20 • MMLF Will Now Accept Municipal Debt
3/23
• Creation of a Primary Market Corporate Credit Facility (PMCCF) • Creation of a Secondary Market Corporate Credit Facility
(SMCCF)• Revival of the Term Asset-Backed Securities Loan Facility (TALF)• Creation of a Main Street Business Lending Program designed
for small / medium sized businesses
3/26 • New York Fed To Buy Commercial Mortgage-Backed Securities for the first time
3/31 • Fed Establishes Temporary Repo Facility (FIMA Repo Facility)
4/6
• CARES Act (Treasury & SBA):• Paycheck Protection Program Liquidity Facility (PPPFL)• Main Street Business Lending Program• Municipal Liquidity Facility• Expanded scope of PMCCF, SMCCF, and TALF
5/11• Secondary Market Corporate Credit Facility (CMCCF) to begin
purchase of ETFs. Only facility to date with ability to purchase financial instruments rated below investment grade.
In total, there has been at least $2.3 Trillion of Fed Support
1106 bps
261 bps
325 bps
165 bps
382 bps
153 bps
550 bps
107 bps
40 bps
79 bps
137 bps
69 bps
330 bps
64 bps
26 bps
45 bps
93 bps
60 bps
8
$1,156
$1,745
$2,051
$1,769
$1,457$1,230
$1,047$879
$735 $641 $548 $464 $386 $324 $269 $239
$16$23
$30$33 $41 $71 $87 $90
$67$86
$120$159
$199 $231 $258 $279
$38 $49 $56 $50$55 $81 $105 $111
$0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$2,250
05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Out
stan
ding
Am
ount
($ B
N)
Legacy Pre-2008 Non-Agency RMBS Post-2009 (2.0/Non-QM) Freddie K CRT Seasoned RPL Seasoned NPL
2019 Issuance ($Bn) 2020 Forecasted ($Bn)Legacy RMBS - -
CRT 13 9Jumbo 2.0 15 17
Non-QM 32 10RPL 48 8NPL 16 7SFR 4 5
Total 128 56
Source: Amherst and Bank of America Merrill Lynch as of 9/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Legacy and Post-2009 Non-Agency Outstanding Balances: 2005 to Q3 2020
In 2007, the Legacy RMBS market peaked at ~$2.1 trillion in size
Today, there is approximately $239 billion outstanding Legacy RMBS, but shrinking by ~18% per year
New Private Label Issuance Offsets Declining Volumes
Q3 20
9
+0.7%
+5.8%
+2.0%+1.2%
0
2
4
6
8
10
12
14
16
18
20
22
24
Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
Yiel
d (%
)
U.S. 10 yr High Yield IG Corp Barclays Aggregate
U.S. Fixed Income Yield Landscape
Source: Bloomberg. Data as of 9/30/20 . IG Corp and High Yield indices do not correlate to IOFIX, whose RMBS and ABS securities have different characteristics to these indices. High Yield uses ticker “LF98TRUU Index”, IG Corp “LUACTRUU Index”, Barclays Aggregate “LBUSTRUU Index”, U.S. 10 Yr “GT10 Govt”.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Fixed Income Yields Last 15 Years
10
Sept '20 Duration Δ in Duration Sept '20 YTW Δ in YTW
U.S. Treasury & Govt Related 7.05 +0.56 0.58 -1.22
Corporate 8.68 +0.85 2.01 -0.90
CMBS 5.29 +0.03 1.44 -0.89
ABS 2.11 -0.12 0.54 -1.50
U.S. MBS 2.12 -0.61 1.29 -1.16
Total 6.12 +0.34 1.18 -1.09
U.S. Treasury & Govt Related43.4%
Corporate27.3%
CMBS2.2%
ABS0.3%
U.S. MBS26.8%
5.85.9
6.12.2
1.6
1.2
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
5.6
5.7
5.8
5.9
6.0
6.1
6.2
Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20
Yield to Worst (%
)Du
ratio
n
Agg Duration (left axis) Agg Yield to Worst (right axis)
U.S. Aggregate Duration vs. YTW: June 2019 to September 2020
U.S. Aggregate Composition: September 2020Categorical Change in Duration and YTW: Sept 2019 to Sept 2020
Yields Drop, Duration Extends For Majority Of U.S. Fixed Income Universe
Source: Barclays. Data as of 9/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
11
1.1%
14.0%
10.6%
8.1%
6.1%
12.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
90+
Delin
quen
cies
(%)
Legacy RMBS
Rise in recent delinquencies mostly attributed to forbearance
Similar to the 2018 hurricanes, COVID-related forbearance has an expected 85%+ cure rate
Source: Amherst Pierpont and Nomura. Data as of 9/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Legacy RMBS Delinquencies Rising As Expected Due To Forbearance
Percent of 90+ Days Delinquent Loans: 2005 to Q3 2020
12
7.3%
9.0%8.8%
8.6%
7.8%7.4%
7.1% 6.8%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
4/17 5/1 5/15 5/29 6/12 6/26 7/10 7/24 8/7 8/21 9/4 9/18
Shar
e of
Loa
ns in
For
bear
ance
(%)
Fannie & Freddie FHA & VA Other Total
National Forbearance Rate Continues To Improve After Peak In May
Source: BlackKnight. Data as of 9/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Share of Loans in Forbearance: April 2020 to September 2020
13
50
100
150
200
250
Under$125K
$125K to$149K
$150K to$199K
$200K to$249K
$250K to$299K
$300K to$399K
$400K to$499K
$500K to$749K
$750K andover
New
Hom
e Sa
les
(tho
usan
ds)
2005 Q2 2020 Annualized
2005 vs. 2020 Newly Built Home Sales by Price Tier
Source: US Census Bureau. Data as of 6/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
There are more newly built homes sold at higher priced tiers today than during the housing boom before the great financial crisis.
In 2005, there were more new homes sold in every single price tier compared to 2020, further exacerbating the housing inventory shortage
14
63%
64%
65%
66%
67%
68%
69%
70%
0
50 M
100 M
150 M
200 M
250 M
300 M
350 M
400 M
1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030
Homeow
nership Rate (%)
Peop
le (M
illio
ns)
US Population (left axis) US Households (left axis) Number of Homeowners (left axis) Homeownership Rate (right axis)
PROJECTED
Housing Demand Increasing As Population And Households Increase
Source: US Census Bureau and Joint Center for Housing Studies of Harvard University. Data as of 6/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses. The forecasts and/or opinions may not come to pass and are subject to change. More recent performance may alter the assessments or outcomes stated herein.
U.S. Housing Metrics: 1966 to 2030 (Projected)
15
0
50
100
150
200
250
300
350
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
2016 2017 2018 2019 2020
Mortgage Applications (Indexed to 100)
New
For
Sal
e In
vent
ory
(M)
US Existing Homes New Listings (left axis) Purchase Mortgage Applications (right axis)
Purchase Applications Are Now Outpacing New Single-Family Listings
Source: Bloomberg. Purchase Mortgage Applications: MBAVNSAP Index, US Existing Homes New Listings: ETSLNEWL Index. Data as of 9/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
There has been a surge in recent purchase mortgage applications and home inventory has not kept up, which has supported home prices
16
49.3%
36.6%
30.8%
20.3%18.7%
47.5%
29.1%28.0%
14.5%15.7%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019
Mon
thly
Mor
tgag
e to
Med
ian
Inco
me
(%)
US New Home Sales US Existing Home Sales
US Home Sales Near Highest Affordability In Almost 5 Decades Home prices reach second most affordable time since 1975, with annual payments for existing homes comprising only 15.7% of income
Source: Bloomberg, US Census Bureau, Freddie Mac. Median Income: HOUIMEDC Index, Existing Home Sales: HSANETMP Index. Data as of 9/30/20. Loan payments assume 20% down payment, 30-year fixed loan. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
17
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017
Perc
ent o
f Tot
al U
S Ho
usin
g (%
)US Housing Inventory For Sale At Half Century Lows
Source: US Census Bureau. Data is calculated using estimates of the housing units for sale only and the total housing inventory for the United States. Data as of 6/30/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
In Q2 2020, the percent of US homes for sale was 0.54% of total US housing, hitting its lowest point in 55 years
Q2 2020 Annual % of Homes for Sale
Average (1965 to Q2 2020)
US Homes For Sale
18
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
Annu
al H
ome
Pric
e Ap
prec
iatio
n (%
)
2020 Wall Street Avg. Estimates 2021 Wall Street Avg. Estimates
2021 HPA Forecast by FirmJPM GS MS Citi BAML WF Nomura
Oct-20 -0.4% 2.6% 0.0% - 0.0% - -Sep-20 -3.1% 2.6% - - - - -Aug-20 - - - 3.0% - - 1.5%Jul-20 - - 0.5% - 0.5% - -Jun-20 -6.3% - - - - - -May-20 -6.3% - - - - - -Apr-20 - - - - - - -Mar-20 3.2% - - - - - -Feb-20 3.2% 3.0% - - - - -Jan-20 2.6% - - - - - -
Source: Bank of America, Citibank, Goldman Sachs, JP Morgan, Morgan Stanley, Wells Fargo, Citi, Nomura. All growth predictions are for the full years of 2020 and 2021. Opinions and estimates constitute a firm’s judgment as of the date of each estimate. Data as of 9/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses. The forecasts and/or opinions may not come to pass and are subject to change. More recent performance may alter the assessments or outcomes stated herein.
Annual Home Price Growth Forecasts Have Greatly ImprovedWall Street Annual Home Price Appreciation Estimates: 2020 and 2021
2020 HPA Forecast by FirmJPM GS MS Citi BAML WF Nomura
Oct-20 3.5% 4.2% 2.5% - 2.5% - -Sep-20 -0.6% 4.2% - - - 3.0% -Aug-20 - - - 5.0% - - 1.0%Jul-20 - - -1.0% - -1.0% - -Jun-20 -4.0% 1.5% - - - - -3.0%May-20 -4.0% -2.0% - 1.5% - 1.0% -Apr-20 - -2.0% -5.3% - - 2.0% -Mar-20 2.7% 3.0% - - - 3.0% -Feb-20 2.7% 3.5% - - - 3.5% -Jan-20 2.5% - 4.0% 4.0% 3.8% - -
19
+4.1%+6.6%
+7.8%
+8.4%
+9.3%
+12.1%+5.6%
+6.4%
+5.5%
+6.0%+4.6%
+4.9%+3.4%
$299 K
$0K
$50K
$100K
$150K
$200K
$250K
$300K
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Med
ian
Hom
e Pr
ice
U.S. Housing Has Tracked ~4% Annual Growth Since 1980Annual Median Home Prices: December 1980 to December 2019
Source: Bloomberg. Data as of 12/31/19. 2020 is an average estimate from Bank of America (4.0%), Citibank (5.0%), Goldman Sachs (4.2%), JP Morgan (3.5%), Morgan Stanley (2.5%), and Nomura (1.0%). There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
AverageMedian Home CPIPrice Growth Growth
1980 to 1999: 4.66% 4.03%2000 to 2006: 7.07% 2.64%
2007 to 2011: -5.65% 2.28%
1980 to 2019: 4.09% 3.08%
2020 Avg. Home Price Growth Estimate
Annual Median Home Price Projected Median Home Price: 4% Growth
20
4.63%
4.10%
3.69%
3.36% 3.30%
2.22%
1.97%
2.85% 2.60%
1.48%
0.54%0.66% 0.69%
0.0
1.0
2.0
3.0
4.0
5.0
0.0
1.0
2.0
3.0
4.0
5.0
Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20
10 Year US G
ovt Yield (%)30
Yea
r Fix
ed R
ate
(%)
30 Year Fixed Rate Has Dropped 266 Bps Since November 2018
Source: Bloomberg. Fannie Mae Commitment Rates 30 Year Fixed Rate 60 Day: FNCR3060 Index, 10 Year US Government Yield: GT10 Govt. Data as of 9/30/20. Mortgage loan payments assume 20% down payment, 30 year fixed loan. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
30 Year Mortgage Rate vs. 10 Year US Bond: September 30, 2018 to September 30, 2020
Assumptions
$200K Home Value
20% Down $160K Loan Value
November 2018
4.63% Mortgage Rate
$823 Monthly Payment
September 2020
1.97% Mortgage Rate
$589 Monthly Payment (26% less)
Spread Between Indices
10/1/18 to 2/1/20 9/30/20
137 bps 128 bps
Fannie Mae 30 Year Fixed Commitment Rate (left axis) 10 Year US Government Yield (right axis)
21
US Consumer Credit Scores Hit Record Highs
Source: FICO. Data as of 7/31/20.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
688
690
686
691
699
704
711
685
690
695
700
705
710
715
2005 2007 2009 2011 2013 2015 2017 2019
FICO
Cre
dit S
core
Average U.S. FICO Score
Average FICO Credit Score: October 2005 to July 2020
22
-17 bps
+127 bps
-164 bps
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20
Percent (%)Pe
rcen
t (%
)
Portfolio Net WAC Portfolio Excess Interest 1 Month LIBOR
Note: This example is for illustration purposes only and shows a simple cash flow waterfall as it relates to excess interest. Specific figures are made to mimic an “example” subprime deal structure. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Excess Interest Mechanisms Unique to Subprime Legacy Non-Agency RMBS
2005 VintageSubprime Borrower
55% HPI-LTV$150k Current Loan Size14% 90+ days delinquent
Pool of Mortgages
BorrowersPrincipal &
InterestGross WAC = 4.5%
ClassC/S
SupportSize
30%20%15%15%10%5%5%
70%50%35%20%10%5%0%
Overcollateralization
Less 50 bpsservicing fee
+ interestNet WAC = 4.0%
4.0% - 0.85% = 3.15% Excess Interest
A1A2M1M2B1B2
Equity
Excess interest is the residual cash flow post scheduled payments to servicers/agents, tranche holders
It usually is the greatest in subprime structures by design and enhances internal credit of deal structure
Serves as first line of defense against losses from delinquencies and defaults, and potentially for repair credit support and write back losses
1 Mo Libor vs. Portfolio Net WAC/Excess Interest: Last 12 months
LIBOR + 70 bpsAvg. Coupon
= 0.85%
23
2.1 2.0 1.9 1.9 1.8 1.7
1.51.5
1.2 0.9
7.8
7.0 7.0
6.6
6.1 5.7
6.15.7
5.1
4.7
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
12.0
13.0
14.0
15.0
16.0
17.0
18.0
19.0
Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20
REO / FC Delinquencies (%
)90
+ De
linqu
enci
es (%
)
Portfolio 90+ Delinquencies (left axis) Portfolio REO (right axis) Portfolio Foreclosure (right axis)
Severe Delinquencies Continue To Decrease
Source: Bloomberg. Figures above shown for illustrative purposes only. Portfolio composition and investment characteristics are all estimated as of 9/30/20, may differ substantially over time, and should not be considered investment advice. Calculations excludes cash equivalents (6.6%), and other securities (1.0%); in aggregate exclusions total 7.6% of portfolio.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Portfolio Delinquencies: October 2017 to September 2020
90+ delinquencies beginning to plateau as foreclosures and REO continue to trend in the right direction
24
5.6
5.0
6.0
7.0
8.0
9.0
Oct-18 Apr-19 Oct-19 Apr-20
Perc
ent (
%)
REO & Foreclosure
8.3
4
5
6
7
8
9
Oct-18 Apr-19 Oct-19 Apr-20
Perc
ent (
%)
Voluntary Prepayment Rate
Continuation Of Strong Portfolio Fundamentals
Source: Bloomberg. Figures above shown for illustrative purposes only. Portfolio composition and investment characteristics are all estimated as of 9/30/20, may differ substantially over time, and should not be considered investment advice. Calculations excludes cash equivalents (6.6%), and other securities (1.0%); in aggregate exclusions total 7.6% of portfolio.There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
56.2
55
56
57
58
59
60
61
62
Oct-18 Apr-19 Oct-19 Apr-20
Perc
ent (
%)
HPI-LTV
VPR: Oct-18 to Sept-20 HPI-LTVs: Oct-18 to Sept-20 REO & Foreclosure: Oct-18 to Sept-20
25
$78.77
$77.17
Total Portfolio Legacy RMBS
4%
49%
29%
18%
0
1
2
3
4
5
6
7
8
9
1
2002 & Earlier 2003 - 20052006 - 2007 Post 2007
2%
19%
38%
25%
9%4% 2%
0% -20%
20% -40%
40% -60%
60% -80%
80% -100%
100% -120%
120%+
78.4%
8.6% 6.6% 4.1% 1.0% 0.9% 0.2% 0.1%
9%
0%
20%
40%
60%
80%
LegacyRMBS
Credit RiskTransfer
"CRT"
Cash &Equivalents
MBS ETF OtherSecurities
ReperformingLoans"RPL"
Multifamily Asset BackedSecurities
"ABS"
Line ofCredit
% o
f Tot
al
11%2%
87%
0%
Prime Alt-ASubprime Multifamily
97%
3%
% Floating % Fixed
IOFAX: Portfolio OverviewMutual Fund Fixed Income Sector Breakdown
(1) Calculations excludes cash equivalents (6.6%), and other securities (1.0%); in aggregate exclusions total 7.6% of portfolio.Source: Bloomberg, Intex, and internal. Note: GPC portfolio above shown for illustrative purposes only. Portfolio composition, investment characteristics and performance are all estimated as of 9/30/20 and may differ substantially over time. Investing in lower borrower credits (i.e. subprime loans) may incur a higher risk of non-payment of interest and loss of principal. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
HPI-LTV Distribution (1)
55.8% HPI-LTV portfolio average
% Floating vs. Fixed Rate (1) Borrower Credit Breakdown (1)Current Price Distribution (1) Vintage Breakdown (1)
Housing Price Index – Loan to Value Distribution
26
Mutual Fund Portfolio Collateral Analysis
Source: Bloomberg. Figures above shown for illustrative purposes only. Portfolio composition and investment characteristics are all estimated as of 9/30/20, may differ substantially over time, and should not be considered investment advice. Collateral historical perf. figures represent an avg. weighted calculation of the portfolio and based on available data. (1) Calculations excludes cash equivalents (6.6%), and other securities (1.0%); in aggregate exclusions total 7.6% of portfolio.(2) Calculations only include legacy RMBS securities (~78.4% of portfolio). Assumes 55.8% HPI-LTV. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
Today 1 Year Ago
2 YearsAgo
3 Years Ago Trend
90+ Day Delinquencies (DQ) 16.3% 15.8% 17.1% 19.0% Improving
HPI-LTVs 55.8% 58.7% 61.7% 66.3% Improving
Today
Total AUM ($) $3.36 billion
# Securities Held 540
Weighted Average Loan Age 162 months
% Floating / % Fixed 97% / 3%
Portfolio Overview (1)
Legacy RMBS Collateral Historical Performance (2)
Approximately 78% of portfolio is composed of securities with market
value greater than $5 million
Fundamentals of collateral continue to improve each year
Position Sizes (current mkt. value) % of Total
$0 to $1mm 1.3%
$1mm to $2.5mm 7.4%
$2.5mm to $5mm 13.2%
$5mm to $7.5mm 14.1%
$7.5mm to $10mm 15.7%
$10mm+ 48.4%
78%
Today
Avg. Current Loan Balance ($) $150,635
Avg. Home Value ($) $269,752
Total # Loans Underlying 314,180
Avg. # Loans Per Security 1,132
Weighted Average Loan Age 178 months
Legacy RMBS Position Statistics (2)
Over 300k residential home loans back the fund’s predominantly floating rate
portfolio
27
Non-Agency Subprime RMBS: 5 Levels of DefenseLe
vels
of P
rote
ctio
n
Homeowner Borrower
Loan-to-Values
Excess Interest
Deal Subordination
Discount of Bond Price
Lower $794 monthly payment Support from unemployment, stimulus checks, refundable tax credits, forbearance,
loans, etc.
55.8% LTV ($151K loan vs. $270k home value) Provides enough asset coverage in event of default/liquidation
Equals Gross WAC – Servicing Fee – Avg. Weighted Bond Coupon 4.5% - 50 bps – 0.85% Avg. Coupon 315 bps excess
Lower tranches in the capital structure will absorb losses first
Purchase discount can provide margin of safety, an important component of total return Legacy RMBS Portfolio Avg. Current Price = $77.17
1
2
3
4
5
Source: Bloomberg and internal. Data as of 9/30/20. There is no assurance that the Fund will achieve its investment objective, generate positive returns, or avoid losses.
28
Year 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Lehman Brothers Barclays Garrison Point
Institutional Sales & Trading Securitized Products PrincipalStructured Fixed Income Products Portfolio Manager Head Portfolio Manager
University of Utah – MBA, BA & BS
U.S. Navy MBA(Kellogg)
LehmanBrothers Barclays Garrison Point
Naval Flight Officer Mortgage Securitized Products PrincipalTrader Portfolio Manager Portfolio Manager
Northwestern – MBA, MEM, US Naval Academy - BS Engineering, University of Maryland - BA
TCW MetWest TCW Garrison Point
MBS Analytics RMBS, ABS, Structured Products Structured Products Managing DirectorFounding Member, Portfolio Manager Portfolio Manager Portfolio Manager
Carnegie Mellon – MSIA, UCLA – BS (Math/Applied Science)
Diversified securitized products manager with particular focus in Non-Agency Residential Mortgage Backed Securities Team members average 20 years of experience in securitized products: structured, traded, managed tens of billions worth of deals Founding partners have worked together for more than 11 years
Garrett SmithPrincipal, [email protected]
Brian Loo, CFAManaging Director, [email protected]
Q&A with
29
Alpha: A measure of the difference between a fund's actual returns and its expected performance, given its level of risk as measured by beta.Alt-A: Classification of mortgages with a risk profile falling between prime and subprime. Historically these loans usually have some high risks due to provision factors customized by the lender. Barclays U.S. Agg. Bond Index is used to represent the U.S. corporate bond market.Bloomberg Barclays U.S. High Yield index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.Beta: A measure of a fund's sensitivity to market movements.C/E (credit enhancement): The improvement of the credit profile of a structured financial transaction or the methods used to improve the credit profiles of such products or transactions. It is a key part of the securitization transaction in structured finance, and is important for credit rating agencies when rating a securitization. Popular techniques for internal credit enhancement include subordination/credit tranching, excess spread, overcollateralization, and reserve accounts. (Source reference: “Fixed Income Sectors: Asset-Backed Securities A primer on asset-backed securities, Dwight Asset Management Company 2005”)Corporate Bonds: broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.Correlation: Statistic that measures the degree to which two securities move in relation to each other.GSEs, or Government Sponsored Enterprises, are quasi-governmental entities that were established to enhance the flow of credit to specific sectors of the American economy. These agencies, though privately-held, provide public financial services. The GSEs focused on the housing sector discussed in this presentation are Fannie Mae and Freddie Mac. High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.Loan to value (LTV): The ratio of a property's appraised value to the amount of the mortgage. Modified Duration: Provides a measure of a fund's interest rate sensitivity; the higher the value of a fund's duration, the more sensitive the fund is to shifts in interest rates.Metropolitan Statistical Area (MSA): geographical region with a relatively high population density at its core and close economic ties throughout the area.Nonfinancial Corporate Debt refers to the aggregate of debt owed by households, government agencies, non-profit organizations, or any corporation that is not in the financial sector. This can include loans made to households in the form of mortgages, or amounts owed on credit cards.Option-Adjusted Spread (OAS) is a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Prime: Designation of credit score for borrowers who are considered to have very good credit and pose little risk to lenders and creditors. S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Standard Deviation: measure of the dispersion of a set of data from its mean; more spread-apart data has a higher deviation. Standard deviation is calculated as the square root of variance. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility.Subprime: Type of mortgage normally issued by a lending institution to borrowers with low credit ratings. Lending institutions often charge higher interest on subprime mortgages in order to compensate themselves for carrying more risk. U.S. 10 Year is a debt obligation issued by the United States government that matures in 10 years.U.S. GDP measures the final market value of all goods and services produced within a country. It is the most frequently used indicator of economic activity.U.S. Residential Property Prices is depicted with the Existing One Family Home Sales Median Price which tracks changes in residential property prices.Vintage: Term used by mortgage-backed securities (MBS) traders and investors to refer to an MBS that is seasoned over some time period. MBSs typically have maturities around 30 years, and a particular issue's 'vintage' will expose the holder to less prepayment and default risk, although this decreased risk also limits price appreciation
Source: SIFMA Investors Guide to Collateralized Mortgage Obligations, Freddie Mac, Financial Terms Dictionary, Investopedia, Barclays.
Key Definitions
30
Risk Category Definition Explained
Borrowing Risks and Leverage RisksBorrowing for investment purposes creates leverage, which will exaggerate the effect of any change in the value of securities in the Fund’s portfolio on the Fund’s net asset value (“NAV”) and, therefore, may increase the volatility of the Fund. Leverage may cause the Fund to incur additional expenses and magnify the Fund's gains or losses.
Credit/Counterparty RiskRisk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivativecontract, is unable or unwilling to meet its financial obligations. Counterparty risk arises upon entering into borrowing arrangements or derivative transactions and is the risk from the potential inability of counterparties to meet the terms of their contracts.
CLO and Collateralized Debt Obligations Risks
CDOs and CLOs are securities backed by an underlying portfolio of debt and loan obligations, respectively. CDOs and CLOs issue classes or “tranches” that vary in risk and yield and may experience substantial losses due to actual defaults, decrease of market value due to collateral defaults and removal of subordinate tranches, market anticipation of defaults and investor aversion to CDO and CLO securities as a class. The risks of investing in CDOs and CLOs depend largely on the tranche invested in and the type of the underlying debts and loans in the tranche of the CDO or CLO, respectively, in which the Fund invests. CDOs and CLOs also carry risks including, but not limited to, interest rate risk and credit risk. The use of CLO’s and CDO’s may cause the Fund to experience substantial losses due to defaults.
Concentration RiskTo the extent the Fund may concentrate its investments in a particular industry or sector; the Fund’s shares may be more volatile and fluctuate more than shares of a fund investing in a broader range of securities.
Currency RiskRisk that foreign (non-U.S.) currencies will decline in value relative to the U.S. dollar and affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.
Derivatives Risks The Fund’s use of derivatives may increase its costs, reduce the Fund’s returns and/or increase volatility. Derivatives involve significant risks.
Distribution Policy Risk
The Fund’s distribution policy is not designed to generate, and is not expected to result in, distributions that equal a fixed percentage of the Fund’s current net asset value per share. Shareholders receiving periodic payments from the Fund may be under the impression that they are receiving net profits. However, all or a portion of a distribution may consist of a return of capital (i.e., from your original investment). Shareholders should not assume that the source of a distribution from the Fund is net profit. Shareholders should note that return of capital will reduce the tax basis of their shares and potentially increase the taxable gain, if any, upon disposition of their shares.
Equity RiskRisk that the value of equity securities, such as common stocks and preferred stocks, may decline due to general market conditions which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed income securities.
Extension RiskIf interest rates rise, repayments of fixed income securities may occur more slowly than anticipated by the market. This may drive the prices of these securities down because their interest rates are lower than the current interest rate and they remain outstanding longer.
Forward ContractsMay be imperfect correlation between the price of a forward contract and the underlying security, index or currency which will increase the volatility of the Income Fund. The Income Fund bears the risk of loss of the amount expected to be received under a forward contract in the event of the default or bankruptcy of a counterparty.
Fund of FundsCertain funds are permitted to invest in the Income Fund. As a result, the Income Fund may have large inflows or outflows of cash from time to time. This could have adverse effects on the Income Fund’s performance if the Income Fund was required to sell securities or invest cash at times when it otherwise would not do so. This activity could also accelerate the realization of capital gains and increase the Income Fund’s transaction costs.
Mutual Fund Risk Terms DefinedRisk Category Definition Explained
31
Mutual Fund Risk Terms DefinedRisk Category Definition Explained
High-Yield Securities Risks
High-yield securities (also known as junk bonds) carry a greater degree of risk and are more volatile than investment grade securities and are considered speculative. High-yield securities may be issued by companies that are restructuring, are smaller and less creditworthy, or are more highly indebted than other companies. This means that they may have more difficulty making scheduled payments of principal and interest. Changes in the value of high-yield securities are influenced more by changes in the financial and business position of the issuing company than by changes in interest rates when 5 compared to investment grade securities. The Fund’s investments in high-yield securities expose it to a substantial degree of credit risk.
Interest Rate RiskRisk that fixed income securities will decline in value because of an increase in interest rates; a fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.
Illiquid Securities RisksThe Fund may, at times, hold illiquid securities, by virtue of the absence of a readily available market for certain of its investments, or because of legal or contractual restrictions on sales. The Fund could lose money if it is unable to dispose of an investment at a time or price that is most beneficial to the Fund.
Liquidity Risk
Risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable to sell illiquid securities at an advantageous time or price or achieve its desired level of exposure to a certain sector. Liquidity risk may result from the lack of an active market, reduced number and capacity of traditional market participants to make a market in fixed income securities, and may be magnified in a rising interest rate environment or other circumstances where investor redemptions from fixed income mutual funds may be higher than normal, causing increased supply in the market due to selling activity.
Market Risk and Security Selection RiskThe risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting securities markets generally or particular industries. The risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting securities markets generally or particular industries.
Mortgage-Backed and Asset-Backed Securities Risks
Mortgage-backed and other asset-backed securities are subject to the risks of traditional fixed-income instruments. However, they are also subject to prepayment risk and extension risk, meaning that if interest rates fall, the underlying debt may be repaid ahead of schedule, reducing the value of the Fund’s investments and if interest rates rise, there may be fewer prepayments, which would cause the average bond maturity to rise, increasing the potential for the Fund to lose money. Certain mortgage-backed securities may be secured by pools of mortgages on single-family, multi-family properties, as well as commercial properties. Similarly, asset-backed securities may be secured by pools of loans, such as corporate loans, student loans, automobile loans and credit card receivables. The credit risk on such securities is affected by homeowners or borrowers defaulting on their loans. The values of assets underlying mortgage-backed and asset-backed securities, including CLOs, may decline and therefore may not be adequate to cover underlying investors. Some mortgage-backed and asset-backed securities have experienced extraordinary weakness and volatility in recent years. Possible legislation in the area of residential mortgages, credit cards, corporate loans and other loans that may collateralize the securities in which the Fund may invest could negatively impact the value of the Fund’s investments. To the extent the Fund focuses its investments in particular types of mortgage backed or asset-backed securities, including CLOs, the Fund may be more susceptible to risk factors affecting such types of securities.
32
Mutual Fund Risk Terms DefinedRisk Category Definition Explained
PrepaymentThe issuers of securities held by the Income Fund may be able to prepay principal due on the securities, particularly during periods of declining interest rates. Securities subject to prepayment risk generally offer less potential for gains when interest rates decline, and may offer a greater potential for loss when interest rates rise.
Price volatility risk Risk that the value of the Fund's investmetn portfolio will change as the prices of its investments go up or down.
Rating Agencies Risks
Ratings are not an absolute standard of quality, but rather general indicators that reflect only the view of the originating rating agencies from which an explanation of the significance of such ratings may be obtained. There is no assurance that a particular rating will continue for any given period of time or that any such rating will not be revised downward or withdrawn entirely. Such changes may negatively affect the liquidity or market price of the securities in which the Fund invests. The ratings of securitized assets may not adequately reflect the credit risk of those assets due to their structure.
Redemption risk.The fund may experience heavy redemptions that could cause the fund to liquidate its assets at inopportune times or at a loss or depressed value, which could cause the value of your investment to decline.
U.S. Government Securities Risks
U.S. Government securities are not guaranteed against price movement and may decrease in value. Some U.S. Government securities are supported by the full faith and credit of the U.S. Treasury, while others may be supported only by the discretionary authority of the U.S. government to purchase certain obligations of a federal agency or U.S. government sponsored enterprise (“GSE”) or only by the right of the issuer to borrow from the U.S. Treasury. While the U.S. government provides financial support to such agencies and GSEs, no assurance can be given that the U.S. government will always do so.
33
Slide 2: Self-explanatory. Read title, bullet point, and many of the performance numbers on the page.Slide 3: Read out many of the numbers on the page including the summary above the graph. Self-explanatory performance graph. Slide 4: Self-explanatory performance slide. Slide 5: Highlight the historic fund outflows across the entire bond universe from early March to early April of 2020. Slide 6: Highlight the non-agency RMBS daily trade volumes for March and the spike on 3/25 and generally high total volume of trades between 3/15 and 4/15. Slide 7: Title and bullets describe the page. Many sector spreads widened but finished this quarter tighter. The prompt stimulus from the Federal Government provided about $2.3 Trillion in support within 2 months. Slide 8: Read out numbers on the page and bullet points. Highlight that the legacy RMBS market is shrinking after it peaked in 2007 at ~$2.1 trillion. Slide 9: Self-explanatory. Title describes purpose of page. Yields across fixed income (high yield, investment grade corporate, Barclays aggregate) are low relative to history over the past 10 years.Slide 10: Self-explanatory. Highlight the increase in Agg duration and the decrease in Agg yield to worst. Slide 11: Title and accompanying bullet point describes the page. Mortgage delinquencies in the legacy RMBS space have ticked up slightly in the last quarter. Slide 12: Title describes the page. Forbearance starting to decrease after a plateau in May. Slide 13: Title and bullet point describe the page. There are less homes being built in the lowered tiered home price in 2020 than there were in 2005. Slide 14: In the last four years homeownership rate has picked up as the number of US households and the overall population continues to increase. Slide 15: For the last four years US existing homes new listings and purchase mortgage applications have moved in tandem but recently they began to separate as demand in housing increases and supply decreases. Slide 16: Title and bullet point describes the page. Both new and existing homes are near their most affordable time since 1975.Slide 17: The inventory of US housing for sale as a percentage of the total US housing market is at its lowest point in 55 years. Slide 18: Title describes page. Bank of America, Citibank, Goldman Sachs, JP Morgan, Morgan Stanley, Wells Fargo, and Nomura home price growth predictions have changed positively for 2020 throughout Q2 and Q3. Slide 19: Read the title and describe the chart. Compare annual median home price growth since 1980 with a projected median home price growth of 4% annually. Pre-crisis growth (2002-2006) exceeded 4% annual growth. Slide 20: See title, assumptions, and two different time period scenarios (November 2018 and September 2020). Highlight the drop in the 30 year fixed rate Fannie Mae Commitment Rates and how that would affect monthly payment on a $160K mortgage. Slide 21: The average FICO score in the United States hit an all time high in July of 2020. Slide 22: Title and bullet points describe page. Graph on the left demonstrates a hypothetical scenario to arrive at excess interest calculations from Gross WAC, Net WAC, and Avg. Coupon. Slide 23: While 90+ delinquencies have increased since April of 2020, foreclosure and REO percentages continue to improve. Slide 24: Title describes the page. Voluntary prepayment rates continue to increase, loan-to-value continue to decrease, and credit support continues to build. Slide 25: Read out numbers on the page and bullet points. Accompanying bullet points are self-explanatory.Slide 26: See accompanying bullet points which describes each chart on the page. Over 314k residential home loans back the fund’s predominantly floating rate portfolio. The fund is currently $3.36 billion in assets under management. Fundamentals of collateral continue to improve each year as denoted by improving trends in 90+ day delinquencies and HPI-LTVs. Slide 27: Read through the bullet points and the five levels of protections in the legacy non-agency subprime RMBS space. Slide 28: Self-explanatory, see bullet points and graph. Slide 30 to 32: Highlight Concentration Risk, Interest Rate Risk, Liquidity Risk, and Market Risk and Security Selection Risk. These risks include the possibility that concentrated Fund’s shares may be more volatile and fluctuate more than shares of a fund investing in a broader range of securities, Fixed income securities will decline in value because of an increase in interest rates, a particular investment may be difficult to purchase or sell and the Fund may be unable to sell illiquid securities at an advantageous time or price due to various factors, and that the value of securities owned by the Fund may fluctuate due to factors affecting securities markets generally or particular industries. For further detail on these and other risks associated with this Fund, please refer to “Mutual Fund Risks Term Defined”.
Talking Points
34
Investors should carefully consider the investment objectives, risks, charges and expenses of the AlphaCentric Funds. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling 844-ACFUNDS (844-223-8637)or at www.AlphaCentricFunds.com. The prospectus should be read carefully before investing. The AlphaCentric Funds are distributed by Northern Lights Distributors, LLC, member FINRA/SIPC. AlphaCentric Advisors LLC, Garrison Point Capital, LLC and Garrison Point Funds, LLC are not affiliated with Northern Lights Distributors, LLC. Any reproduction or distribution of this presentation, as a whole or in part, or the disclosure of the contents hereof, is prohibited.
Investing in the Fund carries certain risks. The value of the Fund may decrease in response to the activities and financial prospects of an individual security in the Fund’s portfolio. The Fund is non-diversified and may invest a greater percentage of its assets in a particular issue and may own fewer securities than other mutual funds; the Fund is subject to concentration risk. Credit risk is the risk that the issuer of a security will not be able to make principal and interest payments when due. The use of derivatives and futures involves risks different from, or possibly greater than, the risk associated with investing directly in securities. Fixed income securities will fluctuate with changes in interest rates. Lower-quality bonds, known as "high yield" or "junk" bonds, present greater risk than bonds of higher quality. The performance of the Fund may be subject to substantial short term changes. There are risks associated with the sale and purchase of call and put options. These factors may affect the value of your investment.
9141-NLD-10/23/2020
Important Risk Information