Why invest in a European ABS Strategy?
Why is an investment in European securitized debt relevant now ?
European policymakers have become increasingly clear about the need to revive the ABS market, given the vital role securitization plays in allowing banking groups to borrow against their loan books and transfer risk off their balance sheets. The European Central Bank has publicly called for an easing of the regulatory environment for ABS to improve both demand and supply and since late 2014 it has implemented an ABS purchase program (ABSPP) to buy ABS paper in both the primary and secondary markets. The purchases are intended to run until the end of March 2017 or longer until the moment the ECB sees a sustained adjustment in the path of inflation consistent with its inflation target.
From end of November 2014 to September 2016, the ECB bought around EUR 20 bn of Senior European ABS which represents a strong support for the asset class in terms of valuation.
ABS redemptions have outpaced new issuance resulting in negative net issuance estimated at around EUR 40 bn for 2016. We expect the strong investor appetite to continue for the asset class. The ABS market is well diversified with market capitalization expected to reach around EUR 450 bn by the end of 2016, which would imply roughly a third of the investment grade market.