Through a new program called the Corporate Bond Fund, First American Funds, a subsidiary of U.S. Bancorp., will begin investing in asset-backed securities.
Though primarily investing in corporate bonds, the fund's asset-backed profile may reach up to 35% without a minimum threshold, said a source at the company.
"In the most ordinary environments, I would expect asset-backeds to comprise 5% to 20% of the portfolio," stated Gregory Hanson, director of First American Asset Management.
"We're attracted by the credit quality and relative risk return that we see in asset-backeds from time to time," he added.
Launched on Feb. 1, the fund is expected to hold more than $50 million by the end of the quarter. About 5% to 20% of that volume would be invested in asset-backed securities. Currently, asset-backed products comprise 15% of the portfolio, explained Hanson.
Though the corporate bonds have an overall credit quality of triple-B, "in asset-backeds we'll be talking primarily triple-A with some single-A when we see good value there," Hanson noted.
Investors in the fund are looking into such asset classes as commercial mortgage-backed securities, manufactured housing, home-equity loans and aircraft lease financing.
"We're attracted by the yields and the cash flow patterns that we see in these asset classes," Hanson said.