IOFIX- Better late than never

zenbrew

Now they tell me!!!!

This summary prospectus change just came in my email. It is very specific for just a summary prospectus. More than I can ever recall. Seems more appropriate in a commentary or letter from the fund rather than a summary prospectus.

March 23, 2020
This information supplements certain disclosures contained in the Summary Prospectus of the
AlphaCentric Income Opportunities Fund, dated August 1, 2019, and the Prospectus and
Statement of Additional Information (“SAI”) for the Funds, each dated August 1, 2019, as
supplemented January 24, 2020.
____________________________________________________________________
AlphaCentric Income Opportunities Fund - Only
The paragraph under the section of the AlphaCentric Income Opportunities Fund’s
Summary Prospectus and Prospectus entitled “FUND SUMMARY - Principal Risks of
Investing in the Fund – Liquidity Risk” is replaced in its entirety with the following:
Liquidity Risk. Liquidity risk exists when particular investments of the Fund would be difficult
to purchase or sell, possibly preventing the Fund from selling such illiquid securities at an
advantageous time or price, or possibly requiring the Fund to dispose of other investments at
unfavorable times or prices in order to satisfy its obligations. The global impact of the coronavirus
on the economic and financial markets have caused severe market dislocations and liquidity
constraints in fixed income markets including many of the securities the Fund holds. To satisfy
shareholder redemptions, it is more likely the Fund will be required to dispose of portfolio
investments at unfavorable prices compared to their intrinsic value.
All Funds
The section of the Funds’ Prospectus entitled “ADDITIONAL INFORMATION ABOUT
THE FUNDS’ PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS -
Principal and Non-Principal Investment Risks – Market Risk” is replaced with the following:
Market Risk. Overall market risks may also affect the value of the Fund. Factors such as domestic
economic growth and market conditions, interest rate levels and political events affect the
securities markets. Local, regional or global events such as war, acts of terrorism, the spread of
infectious illnesses or other public health issues, recessions and depressions, or other events could
have a significant impact on the Fund and its investments and could result in increased premiums
or discounts to the Fund’s net asset value, and may impair market liquidity, thereby increasing
liquidity risk. The Fund could lose money over short periods due to short-term market movements
and over longer periods during more prolonged market downturns. During a general market
downturn, multiple asset classes may be negatively affected. Changes in market conditions and
interest rates can have the same impact on all types of securities and instruments. In times of severe
market disruptions you could lose your entire investment.
An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19
was first detected in China in December 2019 and has now been detected globally. This
coronavirus has resulted in travel restrictions, closed international borders, enhanced health
screenings at ports of entry and elsewhere, disruption of and delays in healthcare service
preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and
lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19,
and other infectious illness outbreaks that may arise in the future, could adversely affect the
economies of many nations or the entire global economy, individual issuers and capital markets in
ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging
market countries may be greater due to generally less established healthcare systems. Public health
crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and
economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its
effects cannot be determined with certainty.

Crash

That does indeed read much more specifically that one might expect! (Oops!)

Charles

Barn door already open. I suspect they are just preparing for lawsuits. Between shareholders, pricing firm, fund house. Killing me. c

VintageFreak

@Charles. I hope you have an article on IOFIX in the May issue. Like you did earlier. People need to know.

msf

Just another way of saying that it was goosing returns by investing too much ("many of the securities the Fund holds") in high risk sectors of the market that no one would want when the market turned south.

Barron's, March 23:

The $2.3 billion mortgage-focused AlphaCentric Income Opportunities Fund (IOFIX) lost 31% last week alone, and reportedly put $1 billion of securities up for sale on Sunday.

The fund focused on lower-rated tranches of residential mortgage-backed securities, with about 60% of its holdings rated BBB or lower, according to Morningstar, which had a five-star rating on the fund.

It was also said to have relatively high exposure to “credit risk transfer securities,” or CRTs, a type of mortgage-backed security introduced after the financial crisis. Those CRTs face especially high risk for losses tied to loan modifications. For example, if a distressed borrower negotiates a lower interest rate with an agency, that interest reduction would be passed along to the CRT holder at a loss, according to Goldman Sachs.

AlphaCentric said in a statement that “like many other funds, [the income opportunities fund] is moving expeditiously to address the unprecedented market conditions. With the lack of liquidity in the marketplace, the most effective way to obtain favorable prices is to offer a wider range of securities for bid instead of a smaller number of specific securities. This broadens the potential universe of buyers to try and obtain the most favorable prices.”

https://www.barrons.com/articles/mortgage-backed-securities-get-hammered-feds-move-may-not-be-enough-51584980932
(I was able to read w/o subscription)

BenWP

Thanks for that link, @msf. The problem faced by IOFIX is not disssimilar to the complete collapse of the financial system in 2007-2008. Michael Lewis’s « The Big Short » explains in painful detail how CDOs and other exotic instruments were a bet on a low rate of failure to repay mortgages issued to people who had no way of paying unless housing prices continued to rise. When housing prices started to decline, the borrowers started defaulting and the house of cards collapsed. « Lower-rated tranches » are nothing more than the dreck or the absolutely riskiest loans. One way Lewis explains these « tranches » is to compare them to the lowest floors of a building built on a flood plain. The top floors represent the highest rated loans (triple A) and thus the least likely to suffer from a flood. As for the bottom floors, it’s merely when they flood, not if.

« The fund focused on lower-rated tranches of residential mortgage-backed securities, with about 60% of its holdings rated BBB or lower, according to Morningstar, which had a five-star rating on the fund. »

Have we learned nothing from the past? For the record, I suffered a big loss on IOFAX.

Derf

As some here declare they harvested a tax loss. While others have created a tax loss for many years to come. Speaking of tax loss, why hasn't this been raised & raised at least with inflation ?
have a sunny Sunday, Derf