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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Easterly's structured credit fund delivered 1.92% returns in Q3 2025, focusing on RMBS and CMBS while maintaining conservative positioning. Non-Agency RMBS remains strong on housing fundamentals, while CMBS shows office sector stress."
The Easterly Income Opportunities Fund returned 1.92% in Q3 2025, slightly underperforming the Bloomberg U.S. Aggregate Bond Index by 11bps. The fund maintains a conservative approach focused on structured credit, with 28.4% in RMBS, 27.0% in CMBS, and smaller allocations to ABS and CLOs. Non-Agency RMBS continues to be the strongest performer, benefiting from healthy housing fundamentals and limited supply, with new issuance matching all of 2024. The CMBS market shows divergence, with office properties struggling significantly while other sectors recover. The ABS market faced turbulence from the Tricolor Holdings fraud scandal, highlighting credit quality concerns in subprime auto lending. The Federal Reserve cut rates by 0.25% in September, with the manager expecting further curve flattening near-term. The portfolio maintains an A average credit rating with roughly 20% in cash and Treasuries, positioning for potential market dislocations while generating competitive income with lower volatility than traditional bond benchmarks.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Fund maintains diversified structured credit approach across multiple sectors without concentrated positioning. No individual securities named or sized. Commentary is analytical but hedged throughout with multiple scenarios presented. Conservative positioning with 20% cash suggests moderate conviction in current opportunities.
Growth Outlook
Manager shows cautious optimism about structured credit markets, particularly RMBS, but acknowledges significant challenges in office CMBS and subprime auto ABS. Expects favorable rate environment but warns of fiscal policy risks.
Risk Appetite
Portfolio increased cash and Treasuries by over 8% during the quarter, reducing CMBS allocation by 5% and RMBS by 2%. This represents a defensive positioning move despite maintaining core structured credit exposure.
Capital Deployment
Fund increased cash and Treasuries by over 8% during the quarter while reducing CMBS allocation by 5% and RMBS by 2%. This represents moderate de-risking and cash accumulation rather than deployment.
Forward Guidance
Manager presents balanced view with expectations for both near-term curve flattening and longer-term opportunities. No clear directional bias for deployment, maintaining optionality with significant cash reserves.
Language Signal
Language is balanced between opportunities in RMBS and concerns about office CMBS and subprime auto credit. Risk language around fiscal policy and tight credit spreads balances opportunity language around structured credit fundamentals.
Perceived Risk
Manager identifies multiple specific risks including fiscal policy concerns from $3 trillion debt expansion, extremely tight credit spreads in first percentile historically, and fraud-related issues in subprime auto ABS. Office CMBS distress and potential for higher long-term rates are discussed in detail.
Opportunity Density
Manager sees selective opportunities in structured credit, particularly in non-Agency RMBS and seasoned CMBS tranches, but emphasizes the need for careful selection. Describes CMBS as highly selective market favoring active management, suggesting limited but identifiable opportunities.
Time Horizon
Fund focuses on structured credit securities with multi-year maturities and discusses fundamental housing and commercial real estate trends. Manager expects gradual resolution of office sector issues and longer-term steepening, suggesting 2-3 year investment horizon for thesis realization.
