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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Constructive on high-quality securitized credit and seasoned non-agency residential mortgages, selectively rotating toward floating-rate tranches and commercial agency paper while fading long-duration corporate fixed income."
The Angel Oak Multi-Strategy Income Fund's Class I shares delivered a net return of -1.31% for the third quarter of 2026, bringing year-to-date net return to 1.30%. The strategy significantly outperformed its primary benchmark, the Bloomberg U.S. Aggregate Bond Index, which fell -3.51% net in the quarter and is down -2.91% net year-to-date. Outperformance was generated primarily through shorter duration positioning and elevated income generation across securitized assets. Securitized credit returned -0.2% and represented 69% of assets, while corporate allocations returned -0.8% across a 13% weighting, and government exposure returned -3.8% at 16% of assets. Cash and equivalents stood at 0.7% at quarter-end. The manager's macroeconomic regime highlights an economy displaying resilient headline activity alongside softening consumer momentum in a K-shaped pattern. The Federal Reserve's restrictive stance and a sharp 80-basis-point increase in the 10-year Treasury yield to 5.29% pressured duration-heavy fixed income sectors. However, Angel Oak views widening spreads and elevated interest rates as creating an attractive prospective 6% to 10% expected return environment over the next 12 months for high-quality structured credit, without anticipating any systemic rise in broader credit stress. Portfolio activity reflected strategic reallocations toward non-agency residential mortgage-backed securities, which expanded by 1% to 42.1% of assets, supported by resilient homeowner equity exceeding $30 trillion and low existing mortgage coupon rates averaging 4.9%. The manager maintained a 15.5% weighting in agency mortgage-backed securities while shifting selectively toward floating-rate agency commercial MBS. Asset-backed securities represented 13.0% of assets, while collateralized loan obligations stood at 9.2%, outperforming peer aggregates through floating-rate cash flows and disciplined tranche selection.
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