IRVINE, CA—If interest rates rise, portfolios withadjustable-rate mortgages should provide a higher level of incomefor investors, reports Vertical Capital MarketsGroup. The firm's Vertical Capital IncomeFund outperformed its benchmark once again in the thirdquarter.
“Like VCAPX, any fund that holds adjustable-rate mortgagesshould benefit from rising interest rates,” GusAltuzarra, CIO for VCAPX, tells GlobeSt.com. “Interestrates for ARMs are at lifetime lows; when interestrates increase, the coupon rate for the ARMs will increaseaccordingly. They will initially trail index values, but they willeventually catch up. As they do, they will provide a hedge againstrising rates.”
In addition, rising rates are usually closely tied withinflation, Altuzarra adds. “If inflation increases, the value ofthe collateral behind the loans should increase,reducing risk.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
