Merganser Capital Management, with $3 billion in a short-term bond product, is planning to gradually shift some of its asset-backed investments from autos into other assets such as credit card and rate reduction bonds, on the view that premium auto ABS deals are amortizing too quickly. Doug Kelly, senior v.p. in charge of the structured portfolio in Boston, says autos with steep dollar prices are paying off quicker than expected. "It's a prepay game and we're not too excited about playing that game," he says, though he notes that autos trading at a premium do have attractive yields because they were originated years back. "With spreads as tight as they are, we don't think there's a lot of reward in buying something dependent on prepayments."
Kelly says he would prefer to invest in deals with bullet structures, such as cards and rate reductions. Although he did not name names, Kelly expects to let autos roll off and invest the proceeds in bullet cards and stranded cost securitizations. The shift will not affect the portfolio's 35% allocation to asset-backeds.
The portfolio is also invested 12-15% in mortgage-backeds, 10% in govvies and 5% in commercial mortgage-backeds. The rest of the portfolio, which is benchmarked to the Merrill Lynch 1-3-year Treasury index, is in investment-grade corporates.
