Looking back on postcards from the (h)edge

By Josh Friedlander

Wed Oct 30, 2013

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Absolute Return also revisits concerns about the potential death of the RMBS trade.


One year ago

»» Investors were wondering whether hugely profitable bets on residential mortgage-backed securities would peter out in the following year. The Absolute Return Mortgage Backed Securities Index was up by an annualized return of 12.52% from the start of 2009 through yearend 2012, and capped off that final year with a median gain of 15.15%. The best performing MBS funds were up more than 40%.

The strategy is still profitable, but it has been far from a free ride lately, and its overall gains have been muted in comparison with last year. The MBS index is up 5.54% through September, slightly ahead of the Composite return of 5.08%.

Five years ago

»» Shocked and inspired by the financial crisis, hedge fund managers produced an unusually philosophical crop of investor letters. In Postcards from the (h)edge, Absolute Return pulled together excerpts from some of the most apocalyptic missives. Among these:

Kyle Bass: "...We think we will see 10-12% unemployment, a 4-5% decline in GDP, and the equity markets could drop at least 70% from peak to trough."

David Einhorn: "In hindsight, our suggestion from last quarter's letter to go to cash and go to the beach would have been the better option."

ISSN: 2151-1845 / CDC10004H