American Century Investments will continue to put cash to work in home equity asset-backed securities on the view that their floating-rate structures are attractive given the current low interest-rate environment. Bob Gahagan, v.p. and head of taxable fixed income in Mountain View, Calif., says the manager of roughly $300 million in ABS has been adding home equity floaters and will continue to do so, on the expectation that rates will eventually go up from their lows and variable-rate bonds will be more attractive.
Specifically, Gahagan says he's looking to participate in subordinate tranches of deals in the secondary market, because he says they are paying out, making them offer better credit quality than subordinates typically do. "We're looking to go down in credit quality in the more seasoned deals that are de-leveraging," he says. He declines to name specific subprime issuers he'd consider, but says the acquisitions will likely be through the secondary market, where there's better value and less focus because of booming HEL supply this year. Overall, home equity paper accounts for about 70% of the portfolio's ABS exposure.
American Century manages about $8.5 billion in taxable fixed income, of which about half that is in core diversified products. ABS account for 7-8% of the diversified investments, overweight to the 2% or so weighting to ABS in the Lehman Brothers aggregate bond index.
