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33 » VISIT US ONLINE @ DSNEWS.COM WHAT INVESTORS NEED TO KNOW Residential mortgage-backed securities (RMBS) are a favored fixed income sector for investors, according to Wells Fargo's midyear outlook. Titled, "2019: Midyear Outlook Eyes Forward: Opportunities and Challenges," the report indicated that the 10-year economic expansion is not over yet. In the report, Darrell Cronk, President of Wells Fargo Investment Institute (WFII) and Chief Investment Officer of Wealth and Investment Management at Wells Fargo, noted that investors now need to "realign their portfolios with their long term goals." "e theme we adopted at the beginning of 2019—'e End of Easy'—still resonates," Cronk said. "e first half of 2019 has delivered exceptionally strong capital market returns across most major asset classes. However, there are risks for investors to keep an eye on, such as a meaningful yield-curve inversion, continued volatility in equity markets, and heightened geopolitical tensions." Paul Christopher, Head of Global Market Strategy for WFII, said, "Since early 2018, investor concerns have focused mostly on political uncertainties, and we view these as the main economic risk. Whether we are looking at Brexit or drawn-out trade negotiations, these geopolitical elements can deepen pressure on business confidence here in the U.S." To help investors maintain a forward focus, Christopher added that "they should consider rebalancing their portfolios to increase diversification and exposure toward areas of economic growth and where valuations remain attractive." e report outlines five strategies for investors to consider in the second half of 2019: » Rebalance when volatility strikes. » Potentially reduce price volatility with income-generating assets. » Use cash to your advantage. » Consider greater exposure to emerging market equities and sectors with higher- quality earnings. » Add strategies that can benefit from various market conditions. » Recent Morningstar Credit Ratings data has also indicated a substantial market for RMBS backed by nonqualified mortgage loans. Non-QM RMBS issuance also climbed in the first quarter, as several first-time issuers launched transactions. Morningstar rated seven new transactions that quarter, which brought the total number of non-QM RMBS deals we rated through the end of March 2019 to 23. e weighted average Morningstar loan-to-value ratio, or LTV, was 68.5% and the weighted average FICO score was 693, though the average loan size of $395,662 is below that of most other deals, while the weighted average coupon rate of 7.1% was the highest amongst the deals Morningstar rated.

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