Appetite for Yield Leading Corporate Investors Back to ABS

The Wall Street Journal ran a great article this week detailing the growing trend of corporations looking to the ABS market to boost yields on their investment portfolios.  Since the beginning of 2012, corporations have increased their ABS holdings by more than 400%.

Although the absolute percentage of ABS investing in corporate portfolios is still relatively small (less than 4%), many expect this rapid trend to continue.  None other than Google has made a concerted effort to be active in this asset class, as the internet giant tries to put more of its free cash into higher yielding securities.

One point made in the article that we found to be very interesting and one that perhaps we would take issue with, was the view that the expected trend for more ABS investing is being driven by a “growing level of comfort with the asset class” by corporate investors.  Now perhaps this was simply poor phrasing by the author but it made one think that these corporations were “only just discovering the merits of ABS”.  If that was the author’s intention, we would argue that what is really likely happening here, is that investors are hungry enough for yield that they are finally ignoring the sensationalism in the markets about the “evils of securitization” and are getting back to a sound evaluation of the underlying fundamentals.

When they do this, what they are finding is a very strong combination low risk and high yield and isn’t that we have been saying for quite sometime.

About markferraris
Managing Principal Orchard Street Partners LLC

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