The toxic asset made famous by 'The Big Short' might actually be a good investment

A lot has changed since the housing and global financial crisis that roiled the world economy from 2007 to 2009 (and still impacts it now). One thing that has not evidently changed, however, is public opinion of mortgage backed securities (MBS).

Wall Street’s use of MBS, which are financial instruments that bundle together several underlying mortgages into a single tradeable asset, was cited as one of the main culprits that brought down the financial system during the crisis. The assets again had a spotlight shone on them in 2015’s film version of Michael Lewis’ book The Big Short.

Despite this negative reputation, however, Gershon Distenfeld, SVP and Director of High Yield and Investment-Grade Credit at AllianceBernstein, said that MBS is actually a great investment right now.

“One thing that we’re overweight on and I really like are mortgage backed securities,” Distenfeld told Business Insider. “People don’t think about MBS that much, but we think that they’re a strong asset to be in.”

One of the biggest issues with the MBS that caused the financial crisis was the quality of the underlying mortgages. Since MBS assets are packaged home loans, the risky and downright dangerous mortgages that they were based on made them toxic. Nowadays, according to Distenfeld, the mortgages being packaged are in much better shape.

“Totally, the quality is much better,” said Distenfeld. “The underlying mortgages aren’t going to people that shouldn’t be getting a mortgage in the first place. It’s much different than it was during the crisis.”

It is true, the credit of people receiving mortgages is much better than it was leading up to the crisis. Thus, it would make sense that the securitized products based on those loans would also be safer.

One issue with the market is that MBS get a bad rap from their role in the financial crisis, and investors are unwilling to take them on as part of a portfolio. Basically, it’s a tough sell to get mum and pop investors to agree to put money into an asset that helped bring down the global economy.

According to Distenfeld, this has led to very few people owning MBS which helps makes the asset look worse than it is.

“There aren’t necessarily buyers in the market right now,” said Distenfeld. “This lowers liquidity and makes the market look tougher than it maybe is.”

MBS so far this year, however, has been pretty strong. S&P’s MBS index has registered a 3.6% return for 2016:

If people get over the fear, however, it appears that the assets could actually be a strong investment, according to Distenfeld.

“I mean basically you’ve got a bond-like security that yields as much as a high yield bond with good quality,” Distenfeld told us. “There’s opportunity there for a pretty good return.”

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