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Mortgage Backed Securities For The Sheeple

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Check out the current fund that Hargreaves and Lansdowne are ramping and the speil that goes with it

http://www.h-l.co.uk/funds/security_details/sedol/B3VH8W8

24 Asset Management will not be a name familiar to investors as it’s a new group but they are specialists in the credit and Residential Mortgage Backed Securities (RMBS) market. The investment team of four individuals are experienced and will aim to provide an income and some potential for capital growth for this fund.

The fund invests in residential backed mortgages. These are mortgages initially sold by banks and building societies. Once enough mortgages have been issued they and the title to the underlying properties are ring-fenced, removed from the lender’s balance sheet and transferred into a type of bond called a RMBS which is sold to an investor. Effectively investors are providing loans for the underlying mortgages, and freeing up the banks and building societies to lend the money again. The mortgages are still serviced by the bank or building society but the bond has first recourse to the properties in the event of default and it also receives the mortgage payments from the homeowners.

It is this arrangement in the United States that was a significant cause of the credit crunch as investors realised that the security of these was not as good as anticipated. This has caused the price to fall drastically. This fund, however, will not invest in the United States where most of the market was sub prime borrowers and therefore poor quality. Instead, it will invest in a diversified portfolio of UK, European and Australian RMBSs which are rated at least AA-, although it is anticipated the majority of the ratings will be AAA, at the time of investment. In UK, Europe and Australia the borrowers are much more creditworthy and the structures more resilient.

Foreign currency exposure will also be hedged to minimise its impacts on return. While some corporate bond funds do invest in this market there is no fund that invests exclusively in this area until now. The current yield on the fund is likely to be 6.5% net variable and not guaranteed. This area of the market has been sold down very heavily (like many corporate bond funds) hence the much higher yield on offer at the present time.

TwentyFour Asset Management is a fairly new company, and the team is also new to Hargreaves Lansdown. Liquidity in this area of the market has also been poor, particularly when bond prices were marked down during the credit crunch. We would therefore like to monitor the fund’s progress and see how it performs. For these reasons, the fund is not currently on the Wealth 150 list of our favourite funds in each sector.

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Good news! The opportunity of a lifetime to buy all the sh1t nobody else wants.

What could possibly go wrong.

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Might put this year's ISA money in this actually. Good chance for some capital gains.

Nah, buy subordinated bank debt, government guaranteed ;)

You love baiting people on here dont't you? :lol:

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Nah, buy subordinated bank debt, government guaranteed ;)

You love baiting people on here dont't you? :lol:

RMBS are really beaten up and I know Rob Ford pretty well. He's a smart guy. I do actually think this fund will do pretty well.

[e] And sub debt has rallied too much IMO.

Edited by Charterhouse

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Check out the current fund that Hargreaves and Lansdowne are ramping and the speil that goes with it

I wouldn't exactly call it ramping (they don't go so far as to recommend it).

H-L is, among other things, an investment news service. So it tells us of new funds. This one got a longer writeup because it's different, and somewhat topical :P

For myself, I'd rather invest in US mortgages than others just now, on the grounds that the 'merkin ones are so unloved they'll be discounted to oblivion ;)

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