Russell Jeffrey’s Providence Investment Management is having an exceptional year as demand rises for the interest-only tranches of agency mortgage-backed securities. Providence MBS Fund is up 77.61% for the year through October, its highest ever annual return. By comparison, the Absolute Return MBS Index has gained 14% over the same period.
The Providence, R.I., fund, which invests in agency mortgage-backed securities and related fixed-income securities, returned 13.1% in October alone as a result of slower prepayments. Slower prepayments make interest-only cash flows more attractive than principal-only tranches, thus raising demand for the interest only bonds of agency MBS.