Investors speaking at a panel at ABS Vegas offered a variety of views on investment opportunities this year.
This range of appetites “should bode well for the market,” said moderator Kevin Duignan, global head of structured finance at Fitch Ratings.
Perhaps astonishingly the thirst for yield even extends to Trups-backed CDOs, the asset class that just recently was granted a qualified exemption to the Volcker Rule.
Guggenheim Securities Managing Director Scott Levy is very much in that camp. While he acknowledged that the regulatory troubles dogging the sector had “quieted down” — perhaps also eliminating the chance to buy the product on the super-cheap — Levy’s take on the asset class is deeper seated. Among the merits of Trups-backed CDOs are that they are typically investment-grade and have been trading at 70-80 cents on the dollar, he said.
What is more, Levy added, the community banking sector that were big issuers of Trups has had “extremely low defaults.”
Without the Voclker exemption, banks would have been forced to offload a significant volume of TRUPs-backed CDOs.
Some saw risk and opportunities in the same basket.
James Grady, head of the structured finance sector team at Deutsche Asset & Wealth Management, said that CLOs still provided good buying opportunities, although he was wary of the fast growth in leveraged loans. What works in the asset class's favor in Grady's view are that the CLO structure itself provides protections for investors and the asset class has underperformed other parts of the market.
PNC Bank Chief Investment Officer Gagan Singh is also a fan of CLOs, largely because they’re floaters. He added that now is a good time to buy floating-rate assets. “We are in the seventh inning of a spread tightening cycle,” he said. “We’re at the point where we have to start becoming cautious.”
While Sigh finds CMBS less attractive than CLOs he believes there are still opportunities in the former class as well given that price-wise CMBS have lagged other products intermediate part of the curve.
A poll of the audience found that 26% of them thought CMBS presented the best investment opportunity in U.S. structured in 2014. This, despite recent reports on loosening underwriting standards. The next in popularity was “off-the-run ABS” (20%), then CLOs (18%) and RMBS (18%).