EFTA01121792.pdf

Asset Allocation for Practitioners STRATEGOS DEEP VALUE COMPOSITE FUND Anastasia KOTOVA !MPS.' Iint t -ell • ar• ISOM wrilfl QC's Yeller IIIIMPIMI a. t t t ) ,.. ... lal•Prt al. laii , arai RISE. n NY Ala I.•• ;. Y lama 41.101.11 ..t Ih l In MI ' ; itt' • , , 1....‘ i ._ ... . 1 . .1 ' .fir EFTA01121792  CONTENTS 1. FUND SUMMARY 2. PORTFOLIO HOLDING & MANAGEMENT 3. TO INVEST OR NOT TO INVEST? 4. CIRCUMSTANCIAL ADVANTAGES 5. FUND STRENGTHS 6. FUND RED FLAGS 7. SELL-IFs 8. CONCLUSION EFTA01121793  I FUND SUMMARY ..:, 1.i Based: Philadelphia, Wholly owned Pennsylvania, USA subsidiary of I .,.ii up, li, Institutional Financial fill I H::: Oh C. : Markets Inc (IFMI) until I::: Domicile: Ireland March 28, 2011 Same Portfolio Manager . ::: ,: 1:::: 1 . :: : :: " ; Vi I .: I :; : ii " managing Funds & i IL, , i I il .. i ll il AUM: $449M SMAs in Composite ' H A !Ph I n4. .. i., 4. 11111;1 II !!IIIII li II--', livi !I ...„:r., iiIII1 Sector Focus: Non- Strategy: Bottom-Up, ihil Agency RMBS, Fundamental Subprime, HELOC, Analysis, Seasoned TRUPS CDO, Non- products, lower LTVs Agency IO EFTA01121794  PORTFOLIO HOLDING & MANAGEMENT Sector Breakdown i ii Portfolio & Risk Managers SDVF I Alex David Barry Ci•olle Gre•or Dennis EFTA01121795 TO INVEST OR NOT TO INVEST? Uniquely Supportive Technicals k. Investing in One of the the middle of best the Capital performing Structure asset classes YES! Specific Longer Geographical Payment Location of History & securities Low LTVs EFTA01121796 CIRCUMSTANCIAL ADVANTAGES • Increasing Interest Rate Environment • Improving Housing Market • Sound Macroeconomic & Market Fundamentals • Understanding of the Mortgage Market 4 Adequate compensation for bearing risk EFTA01121797 FRED — Monthly Supply of Houses in the United States 15.0 12.5 (Months' Supply) 10.0 7.5 di ) 5.0 2.5 2002 2004 2006 2008 2010 2012 2014 2016 Source: US. Bureau of the Census research.stlouisfed.org myf.red/g/4pWC Source: FRED EFTA01121798  FUND STRENGTHS Risk Diversifier Skin In The and Return Game - 9% Enhancers 4ir Benefitting Not entered from Stronger the $ and low SDV FUND Re-REMICs energy prices Structure Attention to changes in Not involved in Industry — Credit Risk Identify Transfer Deals Relative Opportunity EFTA01121799  FUND RED FLAGS • Structural & Public Policy Risks • No mechanism to factor in the 2nd liens to have a better picture of the Combined LTV (CLTV) • Fund managed by same guys who built the first structures of the CDOs. SubPrimes were first to go bust in GFC 4 re-packaging the product • Industry is at $650B, unlike 2008 when it reached peak at $2.1 Trillion 3 Industry reducing @ 10-15% per annum • Do not designate the exact ratings of their holdings 3 93% of bonds originally rated AAA (2008) are now rated below investment grade EFTA01121800  SDVF v/s Markit iBoxx US Non-Agency RMBS TRIndex STDVMBS ID $ NAV 2891.89 31 Mar STDVMBS IC 05/31/2011 1D 3D 1M 6M YTD lY SY Max Daily ♦ Lf Table << Cf. Security/Study PIN Event Source: Bloomberg EFTA01121801  SELLS-IFs • : .1 I . .• ..„: Key members -)Alex & i I ;.. II I I. I. kali, David n . ... . . .. . ... , HT. :, ! ., :Jr. .: Is sr i :.* :: :: I:: :: :I: ::: al :. Major external shocks i ii ll; :I ii it : in i l I I .I . II '41l ll 'I I i II Illi !I Ii; ;I . in i Fundamental changes7)if s lip' macroeconomic indicators il :I 'IIs is .. oi, ii Hi'il: . :4. if ;I:.. 1 Ili!ii rli 7,- Policy changes of the : HP' Fund EFTA01121802  CONCLUSION Cash Distribution Model Flows 4Source of Risk & Opportunity While difficult to directly stress test bonds under policy scenarios 4 add potential interest rate increases when modeling. We model cash follows under a variety of assumptions accounting for different assumed prepayment, default, and loss severity rates. Mortgage servicers are key players in the MBS sphere 4 Collect payments from borrowers and can advance on delinquent loans 4 Relationship with agents is key. Monthly reporting is provided by their 3rd party administrator. Provides a technical stratification of the portfolio and other relevant statistics on the underlying bonds. Illiquidity in the portfolio is managed via Cash Flows generated Opportunities 4 Hedging & Leveraging if market does not expand + Re-REMICs + entering seasoned post 2006 securities EFTA01121803 THANK YOU EFTA01121804