The Lutheran Brotherhood will be seeking to put new cash and proceeds from interest and maturities to work in real estate ABS throughout this year, because the firm is currently underweight the sector relative to ABS indices, according to portfolio manager Steve Lee. Lee, who manages a dedicated ABS portfolio of $300 million, also reasons that the well-documented trouble of several large ABS issuers within the manufactured housing segment, especially firms like Conseco, Oakwood and Vanderbilt, over the last several years has caused some hesitation among buyers. Particularly interesting to him are the home equity loan and manufactured-housing segments, where he notes that industry fundamentals seem to be improving. Also attractive to him about the sector is the fact that many of these issues trade 10-20 basis points wider than credit-card or auto-loan backed deals, at about 30 basis points off of swaps, but have AAA ratings and broad institutional sponsorship.
One deal that Lee has participated in recently was the Lehman Brothers led PSEG '01-1 offering, a rate reduction deal with a three-year average life that came at 17 basis points off swaps. To free up capital for this trade, he sold a Ford Motor lease-backed deal from 1999, with 1.5 years average life remaining.
The Minneapolis-based insurer has a portfolio that Lee describes as 75% "traditional" asset-backed paper, such as credit-card and lease-backed deals, and 25% structured paper, such as catastrophic event (or risk-linked) bonds, and CDOs. The firm uses the Merrill Lynch fixed-rate ABS index as its benchmark, and with a duration of 2.4 years, is approximately neutral to its bogey's duration of 2.3 years.
