Tranched ABX: A Tough Sell?
Not all buysiders are swallowing the market maker pitch surrounding the tranched ABX index to be launched Feb. 14.
Not all buysiders are swallowing the market maker pitch surrounding the tranched ABX index to be launched Feb. 14. Some are questioning the immediate need for TABX, which will provide a tranched version of the 06-02 and 07-01 series of the existing ABX index and will more closely mirror a collateralized debt obligation in terms of the number of reference obligations.
Investors at the conference were questioning whether static access to the housing market via the TABX is the most efficient way to express correlation views given the swings in volatility that have hit the ABS market in the past two months. "With the tranched ABX you are kind of married to what's in there," noted one buy-side portfolio manager in the U.S. "I can't imagine there is not a money manager out there who could not beat the tabx."
Other real-money accounts are waiting on the sidelines until firmer views on implied correlation for ABS emerge. The ABS market is about CUSIP specific risk, said Keith Ashton, portfolio manager at TIAA-CREF. Using the TABX as a proxy when only a portion of CUSIPs are in the model makes the math fuzzy, he added.
Other investors are reluctant to start trading ABS correlation until pricing is more efficient. The ABX started off strong, but recently has been trailing off, reaching record wides in the past month.