Concept: Virtual Structured Opportunity Portfolio (VSOP)

On July 4th, R&R Consulting will launch VSOP, its virtual long-short fund designed to exploit current arbitrage opportunities in the RMBS market.

To select tranches for the fund, we searched for deals that we determined to be over- or undervalued based on our internal estimates of current ratings, prices, and what we call #limbo losses, all of which are compared to publicly available measures. Specifically—

  1. From the ratings standpoint, we used our Point-In-Time Ranking Tool (PIT) to compare and rank almost 50,000 transactions, providing a quick summary of relative deal quality. It is easy to identify mis-rated tranches by comparing their NRSRO ratings to those of other tranches with similar PIT rankings.
  2. From the pricing side, we used ABSTRAK, our fully automated valuation platform. ABSTRAK allowed us to compare each tranche’s market price to our assessment of its fair market value.
  3. Finally, we applied limbo loss analysis to the tranches to identify any hidden or unreported losses in the loan pools. The limbo loss results served as additional evidence to strengthen our virtual investment decisions.

Our fund is permitted to establish long positions on underrated and/or underpriced deals with zero limbo loss; and short positions on overrated and/or overpriced deals, prioritizing those with high levels of limbo loss. The R&R Team has agreed on the initial 50 constituents. On July 5th, R&R will publish some information on the size and holdings of VSOP. We will update you on its performance, on or around the fifth of every month.

While reviewing candidate tranches, we also identified a number of oddball securities (#oddball deals) with unusual credit features. We are interested to observe how they perform going forward and plan to share our observations with you on the Spectrum blog.

Links:

http://www.creditspectrum.com/virtualfund/

http://www.creditspectrum.com/rmbs-losses-in-limbo-as-bad-they-seem-the-reality-may-be-much-worse/

http://www.creditspectrum.com/precisionmetrics/point-in-time-ratings-tool/

http://www.creditspectrum.com/precisionmetrics/valuation-abstrak/

Trackback from your site.

Leave a comment

theSpectrum

Smiley face

Latest Post:

Chang on Changing Economic DialogueWe can try to change the system, or we can try to change human psychology and behavior. For my money, attempting to change the system by substituting one vision for another is a better way to change the dialogue. Ha-Joon Chang is a Cambridge economics professor, Guardian columnist and influential critic of capitalism, on a mission to […]

Click for all posts

Film Fund-amentals

Smiley face

Latest Post:

Film EvolutionOne of the more “fun” aspects of evolution is its sheer unpredictability. Sure, mathematics and chaos theory provide some analytical parameters, but evolution is mostly wild and woolly. Which is something to keep in mind when reading recent news reports on the rapid changes taking place in film. A diverse ensemble of voices and messages can be heard […]

Click for all posts

R&R on China

Smiley face

Latest Post:

How to incubate “AAA” technology start-ups through debt securitization20140912075903-14738342-how-to-incubate-aaa-technology-start-ups-through-debt-securitization.htm

Click for all posts

R&R微博