The Janus Mortgage-Backed Securities Fund posted a strong fourth quarter, contributing to its best annual performance in over two decades, driven by strategic positioning and a favorable market environment. The fund's managers are cautiously optimistic about the upcoming year, emphasizing consistent income generation over aggressive growth. Key factors influencing this outlook include sustained economic resilience, reduced interest rate fluctuations, and supportive monetary policy from the Federal Reserve.
Strategic Investment in Mortgage-Backed Securities
In the final quarter of the year, the Fund delivered a 1.83% return, outperforming the Bloomberg U.S. Mortgage Backed Securities (MBS) Index, which saw a 1.71% increase. This notable quarterly performance culminated in the most successful calendar year for MBS returns since 2002. A significant element of this success involved the strategic deployment of to-be-announced (TBA) contracts, which allowed the Fund to enhance its exposure during periods of market strength, thereby capturing additional transactional returns. The focus on specific mortgage pools, particularly those with coupon rates at or below 5.5%, smaller loan balances, and established 2018/19 vintages, was crucial in mitigating prepayment risk and bolstering the overall carry earnings.
Looking ahead to 2026, the management team maintains a constructive perspective. Their primary objective revolves around generating stable carry returns rather than aggressively pursuing spread compression. This strategy is underpinned by several macro-economic factors, including the resilience of the U.S. economy, a notable reduction in interest rate volatility, and a steepening yield curve. Furthermore, expectations of continued easing by the Federal Reserve are anticipated to create a supportive backdrop for the MBS market. While potential changes to the government guarantee on Fannie Mae and Freddie Mac could theoretically widen spreads, the likelihood of such a scenario is considered minimal, as strong government commitment to these guarantees is expected to persist. The Fund's deliberate asset allocation and careful security selection within both agency and non-agency mortgage-backed securities were instrumental in its positive contributions during this period.
