Henderson head of fixed income John Pattullo has backed the Investment Management Association’s proposal to limit exposure to asset-backed securities in fixed-income funds but Baillie Gifford is calling for more flexibility.
The IMA is proposing a 20 per cent limit on asset-backed securities across the corporate bond, strategic bond, high-yield and global bond sectors. For the corporate bond sector, up to 10 per cent of asset-backed securities will count towards the sector requirements of holding 80 per
cent in corporate securities.
Pattullo finds opportunities to invest in asset-backed securities but says exposure to ABS should not be too high.
He says: “The downside to asset-backed securities is they are not very liquid. A 20 per cent limit on asset-backed securities sounds sensible and if some funds want to go beyond that, perhaps they should be in a specialist sector.”
But Baillie Gifford head of credit Stephen Rodger disagrees with putting a limit on exposure on asset-backed securities.
He says: “We do not want a limit to exposure to asset-backed securities, as the bond team believes we can find substantial value within asset-backed securities. We are keen to continue being allowed to lend to companies we like on a secured basis and having that treated as lending
FE analytics data shows the £240m BG investment-grade long bond fund has 23.2 per cent exposure to asset-backed securities or mortgage-backed securities and its £269m investment-grade bond has a 19.2 per cent exposure.