DMO - DMO: 12% Yielding GSE Risk Transfer Mortgage Fund (Rating Upgrade)
2024-02-20 21:11:36 ET
Summary
- Western Asset Mortgage Opportunity Fund Inc. is a fixed income CEF focused on mortgage bonds that offers a supported 12% yield.
- DMO pursues a different strategy than most mortgage funds by purchasing junior and subordinated tranches of MBS bonds, taking true credit risk.
- The housing market is currently 'stuck' rather than experiencing a collapse, which is favorable for DMO's collateral.
- Higher for longer rates are favorable for the CEF, with its floating rate collateral and favorable default metrics for seasoned collateral.
- The CEF represents a good portfolio diversifier away from corporate credit, and an increase in corporate restructurings will have a very low impact on this fund.
Thesis
Sometimes high-yielding funds prove to be only a mirage, driven by financial engineering gimmicks on the part of managers. Other times, especially in the high-yield world, they are truly supported distributions, with Western Asset Mortgage Opportunity Fund Inc. ( DMO ) being such an example. The fund is a fixed income CEF focused on mortgage bonds, which offers a large supported 12% yield....
DMO: 12% Yielding GSE Risk Transfer Mortgage Fund (Rating Upgrade)