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2015: Year of subprime comeback?

Susannah Lee

As the housing market continues to stabilize, a possible trend seems to be re-emerging, the demand to invest in subprime loans. “We are beginning to see the opening up of credit and I think that’s a trend that we’re going to begin to see,” said Brad Friedlander, head portfolio manager for Angel Oak Multi-Strategy Income Fund (ANGLX), a Morningstar rated 5-star fund.

But, says Friedlander, it’s not the same subprime that triggered the financial crisis. It’s “being labeled as subprime when really, that’s almost a misnomer,” he said. “Right now there is a real misperception of risk like new ‘nonprime’ as they call it subprime, outside of that pristine box of credit underwriting.”

With interest rates at historic lows, investors who are looking for higher returns could be searching for a long time. “Fixed income, in general, is in a really tough position, potentially having a really cyclical bear market ahead of itself, over the next several years,” said Friedlander.

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To be resilient from the Federal Reserve’s impending interest rate hike, the money manager is looking for opportunities within fixed income including legacy subprime real estate mortgage backed securities. “Most of our attention are in credit and credit investments,” Friedlander said.

“2015 will mark an inflection year for non-agency mortgage backed securities to make a comeback as a fixture in the fixed income marketplace," said Friedlander. “That’s where I think as an investor you can pick up income and you can pick up yield.”

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