Bloomberg the Company & Products

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Mortgages as Investing ‘Sweet Spot,’ Zais’s Zugel Says

Don't Miss Out —
Follow us on:

(Corrects title in first paragraph of story originally published Aug. 8.)

Aug. 8 (Bloomberg) -- Mortgage securities offer structured-credit investors the best opportunity to get returns in a low-yield environment, while keeping volatility risk under control, according to Christian Zugel, founder and chief investment officer of Zais Group LLC.

Alt-A and prime mortgage assets are “the one sweet spot we like the most,” Zugel, who oversees $6.4 billion at Red Bank, New Jersey-based Zais, said in an interview today on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “We think housing has found support, the economy is chugging along and you can predict very accurately, in our opinion, what your final cash flows will be.”

Zugel, whose Zais Opportunity Fund manages a $418 million structured-credit portfolio that has returned 78.5 percent a year over the last three years and was ranked No. 1 on Barron’s Top 100 Hedge Funds list, said he takes a more conservative approach to investing, shunning collateralized loan obligations in favor of mortgage securities, which he believes have a better chance of withstanding even in a “doom-type scenario.”

These worst-case economic conditions, which Zugel defines as the U.S. unemployment rate jumping to 15 percent and the housing market plunging as much as 20 percent, wouldn’t hurt the value of Alt-A and prime mortgage securities because “you’re buying legacy bonds that were issued at par many, many years ago, some go back to 2003, 2004.”

“You can buy them at 70, 80 cents” on the dollar today “and you are highly likely to receive principal payments and coupons as these bonds pay off,” Zugel said.

While the days of getting 80 percent returns on securities backed by Alt-A and prime loans “are over,” investors that can earn 5 percent without risking losing their money if the U.S. experienced another recession are in “a good position,” Zugel said. Most of his institutional clients seek returns of 8 percent, he said.

To contact the reporters on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net; Stephanie Ruhle in New York at +1- sruhle2@bloomberg.net; Erik Schatzker in New York at eschatzker@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.