2017 Outlook - Opportunities in Non-Traditional Fixed Income and Structured Credit
Angel Oak Capital Advisors
Description
© 2017 Angel Oak Capital Advisors, which is the advisor to the Angel Oak Funds
Must be preceded or accompanied by a prospectus. To obtain an electronic copy of the prospectus, please visit www.angeloakcapital.com.
Mutual fund investing involves risk. Principal loss is possible. The Funds can make short sales of securities, which involves the risk that losses in securities
may exceed the original amount invested.
Leverage, which may exaggerate the effect of any increase or decrease in the value of securities in a Fund’s portfolio on the Fund’s Net Asset Value and therefore may increase the volatility of a Fund. Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are increased for emerging markets.
Investments in fixed income instruments typically decrease in value when interest rates rise. Derivatives involve risks different from and, in certain cases, greater than the risks presented by more traditional investments. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.
Investments in lower-rated and nonrated securities presents a greater risk of loss to principal and interest than higher-rated securities. A non-diversified fund may be more susceptible to being adversely affected by a single corporate, economic, political or regulatory occurrence than a diversified fund. Funds will incur higher and duplicative costs when they invest in mutual funds, ETFs, and other investment companies.
There is also the risk that the Funds may suffer losses due to the investment practices of the underlying funds. For more information on these risks and other risks of the Funds, please see the Prospectus. Opinions expressed are as of 12/31/16 and are subject to change at any time, are not guaranteed, and should not be considered investment advice. The Angel Oak Funds are distributed by Quasar Distributors, LLC. It is not possible to invest directly in an index. Diversification does not guarantee a profit or protect from loss in a declining market. Earnings growth is not a measure of a Fund’s future performance. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security. The Funds did not hold any of the securities mentioned as of 12/31/16. ARM: Adjustable-rate mortgage. Bank of America Merrill Lynch U.S. High Yield Index: Tracks the performance of below investment grade, but not in default, U.S.
dollar denominated corporate bonds publicly issued in the U.S. domestic market, and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P. Bank of America Merrill Lynch U.S. IG Bond Index: Tracks the performance of U.S.
dollar denominated investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have an investment-grade rating (based on an average of Moody’s, S&P, and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule, and a minimum amount outstanding of $250 million. Barclays Finance Baa Index: The index is the Baa component of the U.S.
Credit Bond Index. The index includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements.
To qualify, bonds must be SEC-registered. Basis Point (bps): One hundredth of 1%; used to denote the percentage change in a financial instrument. Beta: A measure of a security’s sensitivity to market movements. Cash Flow: The net amount of cash and cash equivalents being transferred into and out of a business, especially as affecting liquidity. Collateralized loan obligation (CLO): A security backed by a portfolio of senior-secured floating rate loans made to corporations. Commercial mortgage-backed securities (CMBS): CMBS are backed by pools of individual commercial mortgages. The payments from all of the individual commercial mortgages are distributed to the holder of the commercial mortgage security. Securities are structured into tranches with the higher rated securities receiving payments first and the lower rated securities taking losses first. Community bank sub-debt: Subordinated debentures of financial institutions with total assets of less than $20 billion. Credit spread: The difference in yield between two bonds of similar maturity but different credit quality. DTI: Debt-to-income. Duration: Measures a portfolio’s sensitivity to changes in interest rates.
Generally, the longer the effective duration, the greater the price change relative to interest rate movements. Federal Housing Finance Agency Home Price Index: A broad measure of the movement of single-family house prices in the U.S. Apart from serving as an indicator of house price trends, the House Price Index (HPI) provides an analytical tool for estimating changes in the rates of mortgage defaults, prepayments, and housing affordability. FICO: The Fair Isaac Corporation, more commonly known as FICO, is best known for producing the most widely used consumer credit scores that financial institutions use in deciding whether to lend money or issue credit. Household Debt Service Ratio: An estimate of the ratio of debt payments to disposable personal income. M&A: Mergers and acquisitions. NPL: Non-performing loan. Non-agency RMBS: Mortgage-backed securities sponsored by private companies other than government sponsored enterprises such as Fannie Mae or Freddie Mac. Securities are structured into tranches with the higher rated securities receiving payments first and the lower rated securities taking losses first. Non-prime residential loans: Loans where the borrower’s FICO score is below 680. Price-to-Earnings Ratio (P/E Ratio): The ratio for valuing a company that measures its current share price relative to its per-share earnings. RPL: Re-performing loan. S&P 500 Index: An American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. Swap rate: The fixed rate that a receiver demands in exchange for the uncertainty of having to pay the short-term LIBOR (floating) rate over time.
At any given time, the market’s forecast of what LIBOR will be in the future is reflected in the forward LIBOR curve. Tranche: A portion of debt or structured financing. Each portion, or tranche, is one of several related securities offered at the same time but with different risks, rewards, and maturities. WAC: Weighted average coupon. Yield-to-Worst (YTW): The lowest yield an investor can expect when investing in a callable bond. Learn more at AngelOakCapital.com info@angeloakcapital.com Toll Free: 888.685.2915 10 .
Leverage, which may exaggerate the effect of any increase or decrease in the value of securities in a Fund’s portfolio on the Fund’s Net Asset Value and therefore may increase the volatility of a Fund. Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are increased for emerging markets.
Investments in fixed income instruments typically decrease in value when interest rates rise. Derivatives involve risks different from and, in certain cases, greater than the risks presented by more traditional investments. Investments in asset-backed and mortgage-backed securities include additional risks that investors should be aware of, such as credit risk, prepayment risk, possible illiquidity and default, as well as increased susceptibility to adverse economic developments.
Investments in lower-rated and nonrated securities presents a greater risk of loss to principal and interest than higher-rated securities. A non-diversified fund may be more susceptible to being adversely affected by a single corporate, economic, political or regulatory occurrence than a diversified fund. Funds will incur higher and duplicative costs when they invest in mutual funds, ETFs, and other investment companies.
There is also the risk that the Funds may suffer losses due to the investment practices of the underlying funds. For more information on these risks and other risks of the Funds, please see the Prospectus. Opinions expressed are as of 12/31/16 and are subject to change at any time, are not guaranteed, and should not be considered investment advice. The Angel Oak Funds are distributed by Quasar Distributors, LLC. It is not possible to invest directly in an index. Diversification does not guarantee a profit or protect from loss in a declining market. Earnings growth is not a measure of a Fund’s future performance. Fund holdings and/or sector allocations are subject to change at any time and are not recommendations to buy or sell any security. The Funds did not hold any of the securities mentioned as of 12/31/16. ARM: Adjustable-rate mortgage. Bank of America Merrill Lynch U.S. High Yield Index: Tracks the performance of below investment grade, but not in default, U.S.
dollar denominated corporate bonds publicly issued in the U.S. domestic market, and includes issues with a credit rating of BBB or below, as rated by Moody’s and S&P. Bank of America Merrill Lynch U.S. IG Bond Index: Tracks the performance of U.S.
dollar denominated investment-grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have an investment-grade rating (based on an average of Moody’s, S&P, and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule, and a minimum amount outstanding of $250 million. Barclays Finance Baa Index: The index is the Baa component of the U.S.
Credit Bond Index. The index includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements.
To qualify, bonds must be SEC-registered. Basis Point (bps): One hundredth of 1%; used to denote the percentage change in a financial instrument. Beta: A measure of a security’s sensitivity to market movements. Cash Flow: The net amount of cash and cash equivalents being transferred into and out of a business, especially as affecting liquidity. Collateralized loan obligation (CLO): A security backed by a portfolio of senior-secured floating rate loans made to corporations. Commercial mortgage-backed securities (CMBS): CMBS are backed by pools of individual commercial mortgages. The payments from all of the individual commercial mortgages are distributed to the holder of the commercial mortgage security. Securities are structured into tranches with the higher rated securities receiving payments first and the lower rated securities taking losses first. Community bank sub-debt: Subordinated debentures of financial institutions with total assets of less than $20 billion. Credit spread: The difference in yield between two bonds of similar maturity but different credit quality. DTI: Debt-to-income. Duration: Measures a portfolio’s sensitivity to changes in interest rates.
Generally, the longer the effective duration, the greater the price change relative to interest rate movements. Federal Housing Finance Agency Home Price Index: A broad measure of the movement of single-family house prices in the U.S. Apart from serving as an indicator of house price trends, the House Price Index (HPI) provides an analytical tool for estimating changes in the rates of mortgage defaults, prepayments, and housing affordability. FICO: The Fair Isaac Corporation, more commonly known as FICO, is best known for producing the most widely used consumer credit scores that financial institutions use in deciding whether to lend money or issue credit. Household Debt Service Ratio: An estimate of the ratio of debt payments to disposable personal income. M&A: Mergers and acquisitions. NPL: Non-performing loan. Non-agency RMBS: Mortgage-backed securities sponsored by private companies other than government sponsored enterprises such as Fannie Mae or Freddie Mac. Securities are structured into tranches with the higher rated securities receiving payments first and the lower rated securities taking losses first. Non-prime residential loans: Loans where the borrower’s FICO score is below 680. Price-to-Earnings Ratio (P/E Ratio): The ratio for valuing a company that measures its current share price relative to its per-share earnings. RPL: Re-performing loan. S&P 500 Index: An American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. Swap rate: The fixed rate that a receiver demands in exchange for the uncertainty of having to pay the short-term LIBOR (floating) rate over time.
At any given time, the market’s forecast of what LIBOR will be in the future is reflected in the forward LIBOR curve. Tranche: A portion of debt or structured financing. Each portion, or tranche, is one of several related securities offered at the same time but with different risks, rewards, and maturities. WAC: Weighted average coupon. Yield-to-Worst (YTW): The lowest yield an investor can expect when investing in a callable bond. Learn more at AngelOakCapital.com info@angeloakcapital.com Toll Free: 888.685.2915 10 .
