The late stage of the current investment cycle suggests to us an increased allocation to fixed-income assets that rely less on the extended corporate and sovereign balance sheets. For this reason, we are drawn to non-agency residential mortgage-backed securities (MBS), which we recently split off into a separate sector in our strategic allocation framework at Systematic Income.
One reason for our increased focus on the sector has to do with the fact that this is an asset class that has begun to grow again after years of paydowns. Another reason has to do with the