Smith Breeden's Jeff Wheeler Says the Time Is Right to Invest in Non-Agency MBS -- Optimism Not Required


DURHAM, NC--(Marketwire - Sep 14, 2011) - According to Jeff Wheeler, Smith Breeden Associates' Principal and Portfolio Manager, "Investors don't need to be optimistic about the U.S. housing market or the global economy to appreciate the current investment opportunity in non-agency mortgage-backed securities." Smith Breeden Associates is a research-driven institutional global asset management firm.

According to Wheeler, the non-agency MBS market is ripe with selection opportunities and poised to deliver long-term price appreciation. He recommends a diversified portfolio of non-agency MBS and targets a return of 9-12% gross of fees.

"Even under very harsh assumptions about borrower behavior, the U.S. housing sector, and the economy, these securities offer attractive expected returns compared with other fixed income alternatives, such as corporate debt, emerging market debt, and other high-yield securities, which are generally valued using more optimistic economic assumptions," stated Wheeler.

Wheeler attributes the current attractiveness in non-agency MBS valuations to continued weakness in the sector resulting from the 2007-2008 credit crisis, risk reduction across global capital markets, and supply overhang from the (recently suspended) Maiden Lane II vehicle.

"With interest rates held low for the foreseeable future, capital across the globe will be seeking high-yield risk assets such as non-agency MBS. With no meaningful new issuance, the sector naturally shrinks -- at a rate of approximately 15% per year -- due to defaults and prepayments. A large and growing pool of investors will be deploying capital in a contracting market of outstanding securities. This supply/demand imbalance should result in long-term price appreciation," Wheeler concluded.

About Jeff Wheeler
Jeff Wheeler, CFA, is a Principal and Portfolio Manager at Smith Breeden Associates. Jeff heads the securitized asset team and focuses on the analysis and trading of non-agency mortgage-backed securities and consumer asset-backed securities. Prior to joining Smith Breeden, he was a portfolio manager at Southwest Corporate Federal Credit Union in Dallas and an analyst at Fannie Mae in Washington DC. Before earning an MBA at the University of North Carolina's Kenan-Flagler Business School, Jeff was an analyst at Smith Breeden's Chapel Hill office. He holds a BS in Business Administration from Appalachian State University in Boone, NC, where he graduated at the top of the Finance Department.

About Smith Breeden Associates
Founded in 1982, Smith Breeden Associates provides full discretion fixed income asset management and advisory services to pension funds, endowments, foundations, funds-of-funds, and banks. Focusing primarily on the major US fixed income sectors, Smith Breeden's product line includes a variety of traditional fixed income and absolute return strategies.

Smith Breeden has a 29-year history of pioneering work in developing and applying quantitative financial analysis to mortgage-backed security valuation and trading. The firm developed some of the earliest mortgage prepayment forecasting models in the early 1980s, and was among the first firms to apply option pricing techniques to the analysis of mortgage investments. In the late 1980s, Smith Breeden was retained by the FDIC to analyze, hedge, and liquidate a variety of complex mortgage derivative portfolios. In the 1990s, Smith Breeden was one of the first firms selected by Freddie Mac (FHLMC) to participate in their outside manager program.

More information about Smith Breeden Associates is available at www.smithbreeden.com.

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