Alternatives 101 - An Introduction to MBS

An Introduction to MBS


The third edition in a series of reports which outline the investment landscape across alternative asset classes. This issue focuses on Mortgage Backed Securities


  • Back in November 2018 we published an Alternatives 101 primer on asset backed securities (ABS). Mortgage backed securities (MBS), the subject of this note, are one subset of the ABS universe, specifically those which, directly or indirectly, reference pools of mortgage loans. MBS have been around as long as ABS have, with the market starting to get going in the US in the 1980’s.
  • In this note, we start off by briefly mentioning some of the different types of MBS that currently exist, in what is an ever-developing market. Next, the typical structures of MBS bonds are described, highlighting their built-in protections and other features. The current size of the market and its historical development is then discussed – in aggregate, there was estimated to be $9.7tn of outstanding MBS in the US as at 30 September 2018, with a further $900bn in Europe (as at 30 June 2018). Following this, some important risk considerations are described, together with the general performance-related attributes of MBS securities. These points, and others, are then brought together in a section which highlights the benefits that MBS can bring to a portfolio of other investments.
  • It should be said that MBS constitute a niche, specialised and complex sector which, as a result, does not receive much accessible research coverage. This means that experienced MBS fund managers are able to consistently find value, increasing their chances of delivering attractive returns to investors.


To read the full report click here.


To read the second report on Senior Loans click here.


To read the first report on Asset Backed Securities click here.



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