Handbook of Finance: Investment Management and Financial Management

Chapter 52. Overview of ABS Portfolio Management

KAREN WEAVER, CFA

Managing Director, Global Head of Securitization Research and Regional Research Head—the Americas, Deutsche Bank Securities, Inc.

EUGENE XU, PhD

Director, Global Securitization Research, Deutsche Bank Securities, Inc.

Abstract: Asset-backed securities (ABS) are securities backed by a pool of assets, typically loans or accounts receivable originated by banks, specialty finance companies, or other credit providers. ABS have grown from a niche market product in the 1980s to a mainstay of today's fixed income portfolios. ABS have the broadest investor base of any spread product. Investors employ ABS to suit a spectrum of needs — from a cash or Treasury surrogate in their most liquid forms, to a yield enhancer in their more esoteric ones.

Keywords: fundamental risks, technical risk, collateral risk, structural protection, static pool analysis, operational risk, cash flow risks, early amortization/payout risk, prepayment risk, extension risk, cap risk, basis risk, loss curve

In this chapter, we provide an overview of asset-backed security (ABS) portfolio management. We begin with a description of some of the common ABS investor types. We then discuss constraints, guidelines, and risks in ABS investing, as well as relative value assessment and methods used to monitor and measure ABS performance.

INVESTOR TYPES AND STRATEGIES

Investment advisors and money managers often benchmark the performance of their portfolios against an index, ...