Forget Fannies and Freddies, Non-Agency Mortgage Bonds Much Better

Non-Agency mortgage backed securities are superior to Fannies and Freddies in the current environment because they are less expensive and offer lower prepayment risk, says Brad Friedlander, portfolio manager for the Angel Oak Multi-Strategy fund. Friedlander says around 55% of his fund is in Non-Agency MBS, which will also perform well when interest rates eventually do rise. He says the housing market is steadily improving and home prices should rise at a nice clip in the coming year, helping the quality of the underlying mortgages. Finally, Friedlander is a fan of the credit protection provided by CLOs.