Pine River Capital Management LP, whose bets on U.S. home-loan bonds fueled the second-best hedge fund performance of last year, is picking winners and losers among the publicly traded companies that invest in the debt.

The firm bought shares of mortgage real-estate investment trusts, including two run by ex-Freddie Mac portfolio chief Gary Kain, while wagering against others amid the industry’s worst quarterly slump since 2007, said Steve Kuhn, its fixed-income trading head. Pine River, which disclosed this month it quintupled its stake to 9.2 percent in Kain’s American Capital Mortgage Investment Corp., is investing based on its view of the skills of the managers and the value of their assets, he said.

Pine River is increasing its REIT investments as the $13.6 billion firm also renews bets on mortgage bonds following a slump sparked by the Federal Reserve’s comments on potential stimulus reduction. The Minnetonka, Minnesota-based firm views home-loan bonds without government backing as cheap relative to corporate securities -- after earlier this year cutting holdings in its largest fund to less than half the share in 2011.

“It’s the first time I can say that in a long time,” said Colin Teichholtz, a senior portfolio manager focused on fixed income. “The sector was getting better fundamentally, but the pricing was just less interesting to us. Now, it’s not as compelling as the once-in-a-lifetime opportunity we saw in 2011 but it’s still attractive.”

Subprime Securities

Subprime-mortgage securities and other debt known as non- agency bonds fueled a 35 percent return last year for the $3.6 billion Pine River Fixed Income Fund managed by Kuhn.

The fund has gained 6.6 percent this year, even after a 1.4 percent loss last month as the Fed roiled credit markets with signals it may reduce stimulus efforts, according to an investor with knowledge of the matter, who asked not to be identified because the information is private. Its $2.6 billion multi- strategy fund, which can invest in the debt fund and is run by Aaron Yeary and James Clark, lost 2 percent in June to trim gains to 6.9 percent this year.

Kuhn and Teichholtz declined to comment on the performance.

SkyBridge Capital, which invests $5 billion in hedge funds for clients, had been reducing its allocations to mortgage managers, according to Troy Gayeski, a senior portfolio manager. Investments in vehicles focused on government-backed securities fell to 25 percent, from 40 percent in December and non-agency strategies dropped to 28 percent from 36 percent in March.

The New York-based firm has since reversed that trend.