Through a new program dubbed Target Funds, Prudential Investments' $29 billion Total Return Bond Fund - a major investor in asset-backed securities in the U.S. - could potentially begin looking in new directions, including Europe and emerging markets.
Managed by Pimco Advisors Holdings, the fund is currently the largest capital markets fund in the U.S., with more than $2 billion held in ABS.
Mike Rosborough, who was recently named senior vice president portfolio manager and head of ABS at Pimco, said the asset-backed profile within the fund will likely grow, specifically with interests in new asset classes and products.
"I guess what my job-slash-goal in coming on board is to kind of fill in the gaps," said Rosborough. "You'll be able to see a broader spectrum of potential in the portfolio than we what we have now."
Typically, Pimco has shied away from longer maturities, an area that will likely show growth, Rosborough said. Additionally, he plans to shop "down the credit spectrum from triple-A," perhaps shooting towards some higher yield product."
However, Rosborough doesn't see non-investment grade ABS as a significant option. "The problem with non-investment grade is that it tends to be such a small portion of a deal, that even if it was interesting, it might not be critical mass in size for what we need to do," he said.
"But one thing I've noticed about European ABS is that it's much less generic collateral than what you see in the US, and that a lot of the deals are structured not with a triple-A piece at the top, but a double-A or even a single-A," he said.
Of the $29 billion in assets that Pimco currently manages for the fund, slightly more than 3.5% of it is in real estate-related ABS, with 2% of the total fund in student loan-backed ABS. Auto loan-backed ABS and credit card-backed ABS make up less than 1% apiece.
Before Rosborough was named manager, Pimco's asset-backed departments were split between the money market group and the mortgage-backed group.
"We've re-jigged it a little bit and made [ABS] a separate product, whereas before it was being handled by two different shops with different focuses," Rosborough said. "Hopefully, this will be a way at looking at the market more broadly."