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Among securitized credit funds, the best performing sub-group YTD has been those investing specifically in asset-backed securities (ABS), up +14.5 percent. Only funds focused on India, and the healthcare sector have produced better average returns in 2012.

“From investor interest to performance, the securitized credit hedge fund universe has been one of the highlights of the entire hedge fund industry since the financial crisis. In that time frame, mortgage backed securities (MBS) yields have fallen to record lows and some $19.6 billion has been directed to mortgage related strategies alone.” said Peter Laurelli, Vice President, Research, eVestment|HFN. ”Looking at the massive amounts allocated to all credit related strategies in general over the last year, both on the hedge fund and traditional asset management side, there is a lot of money chasing rapidly declining yields and tightening spreads across the credit universe.”

The report found that assets targeting securitized credit reached another all-time high at the end of August, its fourth consecutive quarterly peak. eVestment estimates total hedge fund assets investing in securitized credit markets reached $119.4 billion at the end of August 2012, $72.3 billion of which is focused primarily on MBS. Total assets under management (AUM) in ABS/mortgage focused strategies are estimated to be $72.3 billion at the end of August 2012. This is an increase of 14.6 percent in 2012, which is well above the industry average AUM increase of 4.0 percent.

Securitized credit funds continue to show higher volatility relative to other fixed income strategies. Historical volatility as measured by annualized standard deviation for MBS centric strategies were 10.1 percent, followed by 12.5 percent for ABS focused strategies, and 13.7 percent for collateralized debt obligations (CDO) only strategies; this compares to an average of 8.6 percent for all fixed income funds.

“Volatility is not necessarily a bad thing, in this case the elevated level is mostly ‘upside volatility’ from periods of higher than normal positive returns,” said Mr. Laurelli.

The report contains comparisons across a variety of securitized credit regional and sub-classifications, including across funds targeting distressed securitized assets and those targeting products originated from European credits.

Mr. Laurelli adds, “Funds targeting securitized products originated with European assets were the only sub-classification to show negative performance in 2011, which shows that in an elevated risk environment; generally well performing and low correlated assets can still result in losses.”

The entirety of Europe securitized credit losses in 2011 came during the second half of the year and the group fell an average of 4.9 percent. The report notes the group has rebounded in 2012, +12.7 percent.

eVestment

Press Release

BM