Investors visiting Bermuda at last week's International Management Network sponsored asset-backed conference were exhibiting confidence, perhaps from reaping rewards from a market where spreads have arced as high as a whack from Mark McGwire.
While postures ranged from aggressive accumulation to defensive sideline gazing, the majority of the buyside seemed certain that the market, despite its ping-pong fluctuations, is healthy.
Resiliency is what investors continue to bank on, sources said, as most have planned to allocate substantial resources to asset-backed purchases in the fourth quarter.
"Full steam ahead as cash allows," said Bermuda-based investor Leah Ogden, a short-term, investment-grade portfolio manager of ABS for STW Fixed Income Management.
"We've been fully allocated to asset-backeds these last years," she said, "and with the spread widening, we've been more heavily weighted in ABS lately." Ogden said STW likes new issuers with good names, and plans to be a regular buyer of rate reduction bonds.
Sub Crowd In Attendance
For those who think the triple-B market is dead, meet CGA Group, Ltd., a Bermuda-based company that has emerged as a buyer of subordinated home-equity deals.
Richard Price, chief executive officer of CGA, said that his company can tolerate the kind of illiquidity found in the junior tranches of home equity deals because the company will take those deals and repackage and resecuritize them.
"In a sense, we bring our own liquidity with us," Price said. "Either the lead tranche - the double-A or triple-A securities - will get resecuritized, or a CGA-owned insurance company will provide a triple-A wrap," he explained.
Marjorie Anderson, a senior portfolio manager who manages $3 billion in ABS for Allstate Insurance Co., was also unafraid of looking down the credit spectrum, at least for her buy-and-hold portfolio.
"We will continue to buy subordinates and off-the-run names," she said.
In contrast, for her total return portfolio, Anderson's strategy through the end of the year is to remain cautious.
"I'd love to be bullish, but we need to wait and see what happens," she said.
Out of the nine speakers on a panel of buysiders at the Bermuda conference, only two planned cautionary strategies. Becky Shulman, chief investment officer of U.S. Central Credit Union, a company invested largely in triple-A ABS, agreed with Anderson, but went further, saying her risk tolerance will actually decline going forward.
"We're between defensive and wait-and-see," she said.
On the issue of year-end fretting, Jon Prestley, who manages $5 billion of ABS for Hartford Investment Management Co., is tired of the hype.
"I'm sick to death of talking about it," Prestley said about Y2K. "I think it's going to be such a nonevent. So far we've seen more front-loading than in the past.
"People say it's going to be a no man's land in December and November, but we'll be out there looking for opportunity."
"We haven't seen enough fear," STW's Ogden quipped. "We'd like to see bigger spreads."
Liquidity Plus Yield: The Holy Grail
Getting liquidity and hearty spread on a single deal can be tough in the best of markets, but despite the promise of continued volatility, investors said relative value can be found going into year end.
Myles Brennan, principal investment officer for The World Bank, sees value in second-tier cards going forward.
"We've started to add second tier names to get spread with liquidity," Brennan said, "especially when they're 20 basis points back.
"Leave retail cards alone, I'm wary of the headlines we're going to be seeing in December," he said. Brennan also likes balance sheet collateralized loan obligations and equipment leases.