MEAG Munich ERGO Asset Management, the Munich-based asset management arm of the Munich Re group, is looking to invest in residential mortgage-backed securities and collateralized debt obligations issued by specialized lenders and managers with well-diversified loan portfolios. "We're taking a fairly conservative stance, focusing on double- and single-A RMBS, and triple- and double-A CDOs," said Sandra Rother, fixed-income portfolio manager with primary responsibility for asset- and mortgage-backed securities.
Rother declined to specify how much money she has to invest over the coming months, saying it depends on the mandates the firm wins from institutional investors and the group's insurance companies. The firm manages about €1 billion in liquid investment-grade ABS/MBS, including asset-backed commercial paper, benchmarked against a variety of bogies combining a spread over Euribor and a spread over the iBoxx indices.
Rother plans to invest in U.K. RMBS deals from master trusts like Northern Rock's Granite and HBOS's Permanent Financing, as well as issues from specialized lenders such as GMAC-RFC. She is favorable on GMAC-RFC because it has a pan-European mortgage lending platform. Credit card ABS is another area Rother favors, but supply has been limited, with no new issues year-to-date.
The asset manager also has her eye on CDOs of leveraged loans. "The portfolios are generally at least 85% very safe senior bank loan facilities, yet the triple-A and double-A CDO tranches offer an attractive 30 basis points and 60bps spread respectively," she noted. Rother favors high-quality CLO managers with at least five years of experience, specialized knowledge and good IT systems, such as ICG and Invesco. She would avoid lumpy underlying portfolios, as these tend to require a high level of analysis and monitoring.
The bulk of MEAG's asset-backed portfolio is in RMBS (35-40%), with about 10% in credit card asset-backeds and 8% in term CDOs. The rest is distributed over granular lease, small and medium enterprise loan deals, autos and commercial mortgage-backeds.
