M&G raises £1.5 billion for ABS strategy

Fund manager M&G Investments has raised £1.5 billion since March for a range of European asset-backed securities (ABS).

M&G said it has raised capital from pension funds in the UK, the Netherlands and the Nordics, and it is targeting investment opportunities arising from the European Central Bank’s (ECB) bond buying programme. The ECB announced at the end of 2014 that it is buying euro-denominated ABS as part of its quantitative easing (QE) programme. M&G ABS portfolio manager, Patrick Janssen, said: “The ECB’s €500 billion bond buying programme of European ABS and covered bonds is significantly compressing the spreads and returns on covered bonds in particular, but only very selectively on some parts of the euro ABS market, especially in the Dutch residential mortgage-backed securities (RMBS).” Janssen added that value can be found in bonds outside the ECB’s bond-buying programme, such as in the UK RMBS market, which is now trading at attractive levels compared to Italian, Spanish and Portuguese RMBS.

James King, ABS portfolio manager at M&G, said that ABS offer floating rate returns and high levels of security for the credit market, as well as diversification from government and corporate bonds. “ABS have typically been under-represented in institutional investor portfolios but following the resilience of the asset class in Europe in the wake of the financial crisis, we are seeing an uptick in investors wanting to understand more about the role that ABS can play.”