Frankfurt-based DWS Investments needs the asset-backed securities new issue market in Europe to pick up in order to put money to work, according to Antje Lechner, portfolio manager on the nine-strong ABS team. The secondary market is too illiquid to accommodate the size of investments DWS typically makes and Lechner says deal flow is only just starting to pick up again after a three-month drought.
DWS has about E8 billion under management in asset-backed investments, including mortgage-backed securities and collateralized debt obligations. Its E1 billion in mutual funds geared to institutional investors is benchmarked against one month EurIBOR plus 30 basis points.
Lechner favors deals that are large enough to provide DWS an adequate allocation, as well as having as many credit categories, rating agency views and as much disclosure as possible. DWS rarely considers deals under E500 million and favors deals that include triple-A through double-B tranches. Particularly when investing in the bottom of the capital structure, Lechner wants all three rating agencies on the deal since their views tend to differ more markedly on lower-quality classes. Issuer disclosure is another parameter Lechner pays close attention to and Lechner favors a lower-rated deal with good documentation over a higher-rated one without.
The composition of DWS's ABS portfolio mirrors the market within its selected credit range, said Lechner. "RMBS is about half of the market and is about half of our portfolio, and what we hold in CMBS, leases, autos, credit cards and so on also reflects the issuance there has been in those sectors." The bulk of investments are euro-denominated European deals, though DWS also buys euro-denominated U.S.- and Australia-originated deals.
