Seer Capital Management LP increased its bets on commercial mortgage-backed securities, saying the debt has more room to gain than residential notes, according to a letter sent to investors.
Seer boosted its holdings of commercial-mortgage bonds to 23.8 percent as of Dec. 31, from less than 15 percent, the New York-based hedge fund wrote yesterday in the letter. The firm is headed by Chief Executive Officer Philip Weingord, the former head of global markets in the Americas for Deutsche Bank AG.
“We believe that CMBS will start to lead the securitized product market going into 2013,” the company said.
Seer, which oversees $1.5 billion in assets, gained 25.9 percent in 2012 following a 2.1 percent rise in 2011, according to the letter. Hedge funds focused on mortgage debt, led by Metacapital Management LP and Pine River Capital Management LP, topped all categories in 2012, rising 20.4 percent, according to data compiled by Bloomberg.
Residential securities represented the largest part of Seer’s portfolio, at 32 percent, according to the letter. Collateralized loan obligations accounted for 25.5 percent of its investments, while the firm has 15.8 percent of its portfolio in cash, a “significant” amount, as it anticipates market turbulence over the U.S. budget deficit.
Scott Tagliarino, a spokesman for Seer at ASC Advisors LLC, declined to elaborate on the letter.
Home-loan bonds without government backing returned an average of about 21 percent last year, according to Amherst Securities Group LP, with some subprime-tied notes rising more than 40 percent. That compares with gains of 10 percent to 12 percent in commercial debt, suggesting “CMBS still has significant upside,” Seer said.
Riskier CMBS have outperformed this year. The so-called AJ portion, or most junior of originally AAA rated classes, of a 2007 CMBS deal considered a market benchmark rose yesterday to 58.6 cents on the dollar, from 54.5 cents on Dec. 31, Bloomberg values show. Typical prices for senior-ranked securities tied to so-called option adjustable-rate home mortgages climbed to 68 cents last week, from 65 cents, according to Barclays Plc data.
Gains in riskier mortgage securities may be approaching an end, according to Bank of America Corp. analysts led by Chris Flanagan in New York.
“We are growing increasingly concerned that the euphoria will turn to disappointment at some point in the near future, as the inevitable profit-taking leads to a price correction,” they wrote in a Jan. 11 report.
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