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| Stephan |
Frankfurt-based Deka Investment will move money into more liquid structured bonds in the coming months, to position itself ahead of an expected return to spread tiering. "We don't necessarily predict spread widening across the board in 2005, but we do expect spreads to widen out between higher- and lower-quality deals," said Stephan Schumann, head of structured products. Schumann is responsible for a team managing €3.5 billion in euro-denominated asset-backed securities and collateralized debt obligations, benchmarked against Euribor. The large liquid issues Schumann has his eye on include deals from U.K. residential mortgage-backed master trusts, such as HBOS's Permanent Financing. He would also be a buyer of Italian and Portuguese sovereign issues similar to SCIC-2, the Italian Treasury's latest securitization of personal loans to Italian public sector employees, and Portugal's Explorer 2004-1, which securitizes delinquent social security receivables.
On the flip side, the fund manager believes deals in rare asset classes or from rare issuers are now too expensive and will get hurt most by any widening. Cars Alliance Funding 2005-1, the first European dealer floor plan securitization from Renault's captive finance arm, and MARS 2004, a rare collateralized debt obligation backed by loans to Dutch small and medium enterprises from ING Group, are the kinds of deals Schumann would sell out of. "It doesn't make sense for the A-rated tranche of Cars Alliance to be trading at 21 basis points over Euribor when the recent Granite RMBS transaction pays 28bps for the same rating while being several times more liquid," said Schumann. He pointed out the bid for such names typically comes from investors such as structured investment vehicles, rather than real money investors, who benefit from being able to leverage up on the back of increased diversification.
The asset manager emphasized he is not changing his allocation across credit ratings, but is rather swapping in his triple-A tranches of less liquid deals for those of more liquid deals, and so on down the rating spectrum. "We think the market is as tight as it can go and we're not getting paid enough for illiquidity," noted Schumann.
