Franklin Strategic Mortgage

The strategy seeks to provide high total return, consisting of high current income and capital appreciation, relative to the performance of the general mortgage securities market.

OVERVIEW

STRATEGY SUMMARY

  • The Franklin Templeton Securitized Team looks for strong cash flow fundamentals and valuations to uncover opportunities across the mortgage investment universe.
  • The portfolio employs a flexible investment approach to find sources of alpha across a broad range of securitized mortgage assets including agency mortgage-backed securities (MBS), non-agency residential MBS and commercial MBS.
  • We seek to add value through three main sources of alpha: sector rotation, duration positioning and security selection.

BENCHMARK

  • Bloomberg Barclays U.S. MBS Agency Fixed Rate MBS Index

OUR APPROACH

Investment Philosophy

We use a combination of quantitative and fundamental analysis to identify compelling sectors and securities in the investment universe. We believe that the combination of a broad opportunity set coupled with multiple levels of market expertise is beneficial for long-term risk-adjusted performance.

Investment Process Summary

We deploy a multi-pronged approach to gain a deeper level of understanding of the underlying collateral across securitized sectors, combining top-down sector allocation with bottom-up security selection within each sector. Highlights of our investment process include:

  • Our approach begins with our Fixed Income Research and Strategy Team (FIRST) which determines relative sector weights taking inputs from portfolio managers and sector specialist on macro and microeconomic factors such as prevailing rates, shape of yield curve, expected volatility, consumer and housing market health, and supply and demand characteristics.
  • Our process relies on rigorous proprietary quantitative and fundamental research to analyze interest rate, prepayment, and credit risks and to identify relative value between sectors and securities. Portfolios are optimized to maximize expected returns within the portfolio.
  • The Securitized Team works closely with our Data Science group to study granular housing data and develop proprietary machine learning based prepayment and default prediction models. By using cloud-based infrastructure to store and process individual loan data, our proprietary prepayment model can use loan-specific data, rather than aggregated pool data.

    OUR TEAM

    Neil P. Dhruv

    Neil P. Dhruv
    Vice President, Portfolio Manager,
    Franklin Templeton Fixed Income
    With firm since: 2002

    Paul W. Varunok

    Paul W. Varunok
    Senior Vice President, Portfolio Manager
    Franklin Templeton Fixed Income
    With firm since: 2001

    David Yuen

    David Yuen, CFA, FRM
    Senior Vice President, Director of Quantitative Strategy and Risk, Portfolio Manager
    Franklin Templeton Fixed Income
    With firm since: 1988