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Valued Contributor

IOFIX special report

The fund posted a special report (link).  You need to register first.

March 20, 2020
Valued Investor,
We appreciate your commitment in the AlphaCentric Income Opportunities Fund IOFIX | IOFCX | IOFAX, especially
during periods of uncertainty and volatility. We believe the Fund is positioned well for this low mortgage rate
environment.
Markets have seen an enormous amount of cash being raised out of fear over COVID-19.
The recent NAV decline in our Fund is largely technically driven. On the flip side, the large draw down in the
corporate world, in both equities and bonds, can mostly be explained through deteriorating fundamentals (ex.
massive drop in airline, hotel, restaurant, retail, travel revenues).
While we are prepared for potential continued technical volatility, longer-term we are as confident as ever in the
fundamentals of our portfolio and believe the current rate environment may accelerate upside returns for our
Fund.
Here are the underlying reasons:
• Legacy mortgages originated back in 2002-2007, are 13-18 years old, why this is important:
o These borrowers made it through the worst housing crisis ever in 2008/2009.
o They have on average 43% equity in their homes today and have spent over a decade building
this equity.
o A good portion of their monthly payment today is on principal.
• YTD mortgage rates have dropped around 17% to historical lows, why this is important:
o Lower rates = increase in refinancing by homeowners and bond calls by service providers.
o Many of the legacy bonds that we paid less than par for are now likely to be paid off at or near
par.
o The increase in refinancing and foreseeable bond calls sets the table for nice price appreciation
over the next 12-18 months, in addition to the monthly income.
o Average price of the homes in the portfolio is around $260k, this segment of the housing market
continues to remain strong with low rates and a shortage of homes.
• Unlike corporate debt, our bonds are backed by hard assets - homes with real equity and in many cases,
the biggest asset a homeowner has.
o 10 out of the last 11 recessions have had minimal impact on housing.
o The Government provided many mortgage assistance programs to keep homeowners in their
house during the last recession and now, more than ever, it is of the utmost importance for
homeowners to stay put in their homes and away from others.
o In many cases, homeowner's two largest expenses, mortgage and energy, just got reduced.
o The Fund has no exposure to CLO's, CMBS, consumer credit, etc...just housing.

This will not continue forever, and as always markets will eventually stabilize. We know that being an investor
today, and during any period isn't exactly a stress-free experience, but we believe value investors should consider
adding to this portfolio.
Please let me know if you have any questions. If you would like to schedule a call with one of the portfolio
managers, we are happy to schedule it.

Thank you,
AlphaCentric Advisors
Garrison Point Capital LLC

29 Replies
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Participant ○○

Re: IOFIX special report

Interesting - thanks. I wonder how much of the big drop Friday was mark to market - which they sort of imply - and how much was forced selling at low prices to meet redemptions.

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Contributor ○○○

Re: IOFIX special report

Thanks for posting. It is great the PM put this out for investors.

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Follower ○○

Re: IOFIX special report

FD,

Thanks for the posting.  I've been a holder of IOFIX since Feb 2018.  Reinvested divy along the way and just made a rather large purchase in Jan 2020.  Down 27%, but will hang with these guys - think they know what they're doing!

Cordwood

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Follower ○○○

Re: IOFIX special report

Thank you for this posting.  

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Explorer ○

Re: IOFIX special report

 

Thanks for sharing.

Would you say this optimistic reasoning also applies to SEMPX ? 

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Valued Contributor

Re: IOFIX special report


@sandman100 wrote:

 

Thanks for sharing.

Would you say this optimistic reasoning also applies to SEMPX ? 


Yes, all/most funds in these special securitized/MBS got beaten.  The following have high % in that SEMMX,VCFAX,EIXIX,DPFNX,IOFIX.  

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Participant ○○

Re: IOFIX special report

Fool me once, shame on you.

Fool me twice, shame on me!

Enough said!

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Valued Contributor

Re: IOFIX special report

I checked SEC/Edgar for IOFIX and there is no new regulatory filing - only 3/2/20 report on monthly portfolio as of 12/31/19. May be someone can see stuff with blowup potential - I see lot of mortgage floaters [bad when rates collapse], securitized tranches and 144A [unregistered private placements], stuff that may be hard to get out of in a jam.    https://www.sec.gov/Archives/edgar/data/1355064/000175272420044826/alphacentricnport.htm

So it lost -33.2% since 3/6/20 in "normal" way. I found its statement wishy-washy. I never owned it but I am curious about its blowup - how? why?    https://stockcharts.com/h-sc/ui?s=IOFIX&p=D&yr=0&mn=6&dy=0&id=p95703933356

YBB
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Participant ○

Re: IOFIX special report

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Contributor ○○○

Re: IOFIX special report

I didn’t own it but I am curious if this affects settlement for sellers? I suspected that was a reason theses funds started tanking. 


@Sortatino2 wrote:


IOFIX in trouble 

http://oltnews.com/market-flooded-with-mortgage-bond-sales-amid-us-calls-for-help-yahoo-finance

 


 

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Participant ○○

Re: IOFIX special report

At this stage, I think they should halt redemptions to avoid having to sell MBS at very depressed prices, and contributing to the downward spiral.

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Valued Contributor

Re: IOFIX special report


@keppelbay wrote:

At this stage, I think they should halt redemptions to avoid having to sell MBS at very depressed prices, and contributing to the downward spiral.


That is what Third Avenue HY had to do.

YBB
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Participant ○○

Re: IOFIX special report


@yogibearbull wrote:

@keppelbay wrote:

At this stage, I think they should halt redemptions to avoid having to sell MBS at very depressed prices, and contributing to the downward spiral.


That is what Third Avenue HY had to do.


yup, and it should be followed by slow, staged redemptions so that they can wind down without unnecessary harm to shareholders.

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Valued Contributor

Re: IOFIX special report


@keppelbay wrote:

@yogibearbull wrote:

@keppelbay wrote:

At this stage, I think they should halt redemptions to avoid having to sell MBS at very depressed prices, and contributing to the downward spiral.


That is what Third Avenue HY had to do.


yup, and it should be followed by slow, staged redemptions so that they can wind down without unnecessary harm to shareholders.


Memories. Same as IOFIX, I used to own that fund and sold immediately when I felt the pressure.  I had 2 shares left that I could not sell for years after the halt while I read that I should be able to do that.  Since it was 2 shares I didn't bother.

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Contributor ○○○

Re: IOFIX special report


@FD1001 wrote:

@keppelbay wrote:

@yogibearbull wrote:

@keppelbay wrote:

At this stage, I think they should halt redemptions to avoid having to sell MBS at very depressed prices, and contributing to the downward spiral.


That is what Third Avenue HY had to do.


yup, and it should be followed by slow, staged redemptions so that they can wind down without unnecessary harm to shareholders.


Memories. Same as IOFIX, I used to own that fund and sold immediately when I felt the pressure.  I had 2 shares left that I could not sell for years after the halt while I read that I should be able to do that.  Since it was 2 shares I didn't bother.


Maybe a bitter lesson to be learned in this crash is regarding "risk" associated with funds like IOFIX.  There were many debates, and strong opinions about how risky this fund was, but they were summarily dismissed based on its charmed life over its existence period.  No one ever compared it to funds like Third Avenue HY in those debates, but that now may become a more common debate line.

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Valued Contributor

Re: IOFIX special report


@dtconroe wrote:


Maybe a bitter lesson to be learned in this crash is regarding "risk" associated with funds like IOFIX.  There were many debates, and strong opinions about how risky this fund was, but they were summarily dismissed based on its charmed life over its existence period.  No one ever compared it to funds like Third Avenue HY in those debates, but that now may become a more common debate line.

 


Losing 30+% from the top is extreme but other/similar funds lost a lot anyway.  SEMMX lost 15%

and what about IG corp bond VCIT that lost 13% in less than 2 weeks, isn't it extreme?

It's a black swan nobody could have predicted.  Similar things happened in 2008, was it a good idea to use 2008 events as your guide for the next 10 years?

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Valued Contributor

Re: IOFIX special report

Aha! IOFIX just added liquidity risk as supplement to its prospectus. I hope that SEC isn't happy with this - fund liquidity rules went into effect in 2018/19 and I have started a thread on it.

https://www.sec.gov/Archives/edgar/data/1355064/000158064220001282/alphacentric497s.htm

"Liquidity Risk. Liquidity risk exists when particular investments of the Fund would be difficult to purchase or sell, possibly preventing the Fund from selling such illiquid securities at an advantageous time or price, or possibly requiring the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations. The global impact of the coronavirus on the economic and financial markets have caused severe market dislocations and liquidity constraints in fixed income markets including many of the securities the Fund holds. To satisfy shareholder redemptions, it is more likely the Fund will be required to dispose of portfolio investments at unfavorable prices compared to their intrinsic value."

YBB
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Participant ○○

Re: IOFIX special report

cheeky b*****s


@yogibearbull wrote:

Aha! IOFIX just added liquidity risk as supplement to its prospectus. I hope that SEC isn't happy with this - fund liquidity rules went into effect in 2018/19 and I have started a thread on it.

 

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Explorer ○○○

Re: IOFIX special report

Wow, never knew a bond fund can fall -31% YTD. just Wow. I see it is from Alphacentric, that i posted in separate thread. I always thought most one can lose in a bond fund is like 5%. Is it high Yield?

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