M.D. Sass
Income - bg

Structured Fixed Income

Latest Factsheet
Approach
Specialist investor in a growing array of Securitized product over the last 30+ years. M.D. Sass Fixed Income offers yield, return potential, downside protection, and a differentiated exposure, while emphasizing quality and liquidity

Core Competencies

  • Experts in structured credit collateral and securitization
  • Ability to find well structured bonds that have stable cash flows across a range of interest rate scenarios
  • Advanced structural analysis, proprietary quantitative work, and deep fundamental research

Edge

  • Finding differentiated alpha opportunities across the Structured Credit spectrum
  • Managing volatility through a multi-faceted, opportunistic risk management approach
  • Early mover into new sectors as they emerge
Guiding Principles

Stability Across Scenarios

We prioritize finding well-structured bonds with stable cash flows that demonstrate resilience across a spectrum of interest rate scenarios.

Comprehensive Analysis

Our approach involves advanced structural analysis, proprietary quantitative work, and deep fundamental research to inform our investment decisions.

At M.D. Sass Fixed Income, our investment strategy is guided by key principles that underpin our approach to delivering value and resilience in the ever-evolving market environment.

Differentiated Alpha Opportunities

By exploring the entire Structured Credit spectrum, we identify and pursue differentiated alpha opportunities, ensuring a distinctive edge in the market.

Dynamic Risk Management

Our multi-faceted and opportunistic risk management strategy is tailored to manage volatility effectively, ensuring a balanced and resilient portfolio.

Philosophy
At M.D. Sass, our Structured Fixed Income philosophy is anchored in the pursuit of a well-balanced investment approach that seeks to harmonize stability and yield. Crafted through decades of market expertise, our philosophy is designed to navigate the complexities of the fixed income landscape, offering investors a reliable source of income with a risk-controlled methodology.
Crafting Portfolios Across the Risk/Return Spectrum

Short Term Agency

Agency Plus

Investment Process
MD Sass meticulously identifies alpha opportunities in structured credit markets with robust risk management. Investments cover Agency RMBS, Non-Agency, ABS/ESG-Infra/CMBS, catering to diverse objectives and risk appetites. To navigate, we focuse on Market Themes and Relative Value, dictating the investment outlook through comparative analysis. Idiosyncratic Opportunities capitalize on unique market conditions. Security selection is a critical step in the process where Synthetic Exposure or Leverage can be used to optimize implementation. Portfolio Management emphasizes Duration, Convexity, and Sector Weighting for balance. MD Sass's approach relies on a Risk Management framework, including Hedging, Alternative Risk Premia/QIS, and Cross-Sector analysis, forming a comprehensive process for sustainable, risk-adjusted returns.
Investment Process
In-Depth Collateral, Structural, and Interest Rate Analysis in our Investment Process

Collateral & Structure Analysis

  • Loan Seasoning
  • Housing prices / Loan to Value
  • Borrower Credit (e.g. FICO) and Loan Purpose (e.g. purchase, investor)
  • Loan Size and Geos concentration
  • REFI incentive (Spread at Origination)
  • Delinquency roll rate
  • Default and recovery
  • Servicer
  • Securitization structure (reverse remic)
  • Cash Flow Waterfall

Security & Interest Rates Analytics

  • Term Structure
  • Volatility
  • Option Adjusted Spread modeling
  • Prepayment Modeling
  • Credit Loss Modeling
  • Yield Curve Reshaping
  • Total Rate of Return Simulation
  • Prepayment Vector Stress Tests
  • Historical Regression and Correlation Analysis
  • Empirical modeling validation
Risk Management
At M.D. Sass Fixed Income, our commitment to excellence extends to our rigorous risk management practices. We understand that effective risk management is paramount to preserving and enhancing the value of our investors' portfolios. Here are the key elements of our risk management approach:
Risk Management
Why Structured Products Today

Fed Funds “higher for longer” regime -> Carry in a range bound market (unless Fed Fund going to 6% or higher) -> Structured product The range of Structured products are cheap today.

Valuations are further supported by the limited supply of our target assets.

We believe Structured products are in a position to outperform in both soft and hard landing scenarios Structured products are by their nature shorter duration – will benefit from today’s inverted yield curve normalizing.

Longer maturity of the yield curve might be further affected by QT even as Fed pause Hedging currently enhances carry (by paying fixed rate on long end, and receiving money market rates on short end), while preserve spread duration of underlying securities Currently, we continue to focus on sectors with high (rating) quality, shorter duration and high carry, e.g. Agency 5-year IO, Multi-family Credit Risk Transfer, selective high-quality home-equity/2nd lien (given high mortgage rate and suppressing refi activity), and floating rate assets.

We also see opportunities in the rate and volatility front, both for hedging and forward steepeners.