Spreads of a segment of asset-backed securities (ABS) have remained wider since the recovery from the mid-March market dislocation. While the gap in spreads may present opportunities, it may also reflect that investors are not fully comfortable with and/or familiar with the esoteric ABS segment, securities backed by less understood assets such as leases on airplanes, shipping containers and railcars.
Esoteric ABS asset do have idiosyncratic risks. Securities are affected by both the evolving market dynamics affecting collateral as well as the ABS structure, where nuance can be critical. Conning explains that an experienced hand in both could be highly valuable in seeking opportunities in the current esoteric ABS market.
Paul Norris, Head of Structured Products, examines the issues in the Viewpoint “Esoteric ABS: Spreads Suggest Opportunity but Manager Experience, Focus May be Valuable.”