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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (5377)	3/23/2008 9:47:12 AM
From: RockyBalboa	Respond to of 71463

AN EDGE? The Performances of MBS Mutual Funds and Hedge Funds: Another Puzzle Abstract Mutual funds that target mortgage-backed securities (MBS) as an investment objective have underperformed the Lehman MBS Index by an average of 141 basis points annually from 1992 through 2003. In contrast, MBS hedge funds have outperformed the Lehman MBS Index by an average of 210 basis points per year. This contrast in performance persists even after adjusting for total risk, as measured by Sharpe ratios. It also persists on a market risk-adjusted basis. Using CAPM single-index, market-timing, and various multi-index and multi-factor models, we consistently find that Jensen´s alpha is negative and significant for MBS mutual funds, but positive and significant for MBS hedge funds. ... During the past twenty years, the securitization of residential mortgages has come to dominate the U.S. mortgage market. From 1985 to 2004, the size of all outstanding mortgagebacked securities (MBS) climbed from $370 billion to $5.5 trillion, nearly 15-fold. Currently, at more than 45% of U.S. GDP, the MBS market has become the largest bond sector, surpassing the Treasury and corporate bond markets. From an investor´s viewpoint, MBS has infused liquidity into a fundamentally illiquid mortgage market, leading to lower-risk investment alternatives mostly guaranteed by federal agencies, such as Ginnie Mae, Fannie Mae, and Freddie Mac on what would otherwise be non-rated debt. .. As an additional motivation for this study, we find the interesting observation that MBS mutual funds, which include all live and dead funds, have underperformed the Lehman MBS Index by an annual average of 141 basis points from 1992 through 2003. A similar finding holds if we change the benchmark to the Lehman U.S. Aggregate Bond Index, producing a difference of 173 basis points per year. The underperformance, though, is particularly striking when compared to MBS hedge funds: 377 basis points. .. Lockwood, and Rutherford (1997) examine the performance of MBS mutual funds and find that the funds underperform the MBS market index. They attribute the underperformance to incorrect security selection, bad timing, and high fund expenses.