The sensitivity of mortgage and other credit investments to an anticipated rise in interest rates can be mitigated, a credit hedge fund manager told attendees at the SkyBridge Alternatives Conference in Las Vegas Wednesday.
Clayton DeGiacinto, chief investment officer at structured credit hedge fund manager Axonic Capital, said there are opportunities to earn returns in the mortgage market based on careful selection of individual securities.
Opportunities exist to invest in non-agency residential mortgages bought at deeply discounted dollar prices, Mr. DeGiacinto said.
During a session on navigating the mortgage market, Mr. DeGiacinto and other speakers said the possibility of rising rates, which likely will come after unemployment has dropped, will be positive for legacy mortgage assets as default risk will continue to drop.
Deepak Narula, founder and managing partner of Metacapital Management, which invests largely in mortgages backed by Fannie Mae and Freddie Mac, said he sees opportunities in the possibility of rising interest rates. Quantitative easing “crushed interest-rate volatility,” sending it to 10-year lows and creating opportunities for investors, Mr. Narula said.
Meanwhile, Philip Weingord, founder and CEO of Seer Capital Management, said the U.S. and European bank capital regulations have created opportunities for hedge funds.
“Where banks are not, there are great opportunities,” Mr. Weingord said. He cited opportunities in pre-crisis commercial mortgage-backed securities, collateralized loan obligations and whole business securitizations, especially from European businesses.
