September 15 marked a decade since the collapse of Lehman Brothers, and Eaton Vance’s chief income investment officer, Payson F. Swaffield, said investors could learn a thing or two from the crisis about following timeless investing rules.
Investors who held on to investments bought pre-2008 crisis – even if bought at the peak before the Lehman collapse – could have had positive annualised returns over the next 10 years, according to Swaffield.
The lessons learned, he said, could aid investors considering the recent emerging markets debt and currency sell-offs, using the bounce-back of subprime mortgages as an example.
While the mortgages were widely publicised as one of the catalysts for the crisis, Swaffield said 10 years later, the AAA-rated subprime RMBS has rebounded to 95 cents on the dollar, while BBB-rated RMBS remain completely wiped out.
The difference in AAA and BBB-rated subprime RMBS, said Swaffield, was in how the RMBS deals were structured.
“The most important lesson here is that there is no substitute for knowing what you own,” he said. “Both AAA and BBB RMBS suffered major declines as the crisis panic took hold, but the ultimate payoffs were dramatically different. AAA investors who took the time to understand how subordination worked – and held on – were paid for their efforts.”
Swaffield said this illustrates the value of “staying the course” when you understand your investments.