Vontobel Fund - TwentyFour Monument European Asset Backed Securities

Why invest?

• ABS normally offers a higher yield for a given rating or maturity than more mainstream investments such as government or corporate bonds
• ABS are virtually all floating rate, meaning they are naturally expected to be far less volatile than fixed rate bonds in periods when interest rates are rising
• Built-in investor protection features such as credit enhancement, loss-absorbing reserve funds and the legal separation of issuer and asset pool
• High transparency with transaction reports detailed enough to view the performance of each individual loan in the asset pool, enabling investors to conduct their own research
• ABS remains a largely under-researched and poorly understood asset class, meaning those that put in the effort and expertise can be rewarded with a complexity premium

Fund characteristics

• No capital guarantee or principal protection – capital preservation is sought by high conviction stock selection from experienced ABS specialists
• Bonds must be rated at least BBB or equivalent at time of investment
• The Fund is typically happy to hold all investments to maturity, though it trades based on relative value seeking to generate alpha for investors
• Flexibility to invest across the full spectrum of products, yielding greater access to transactions and ability to influence their pricing and/or structure
• Large amount of resources devoted to due diligence, meetings with servicers and CLO managers, and forensic internal modelling

Investment universe

The European ABS market is split broadly into four areas, though certain sub-sets of these sectors are considered important distinct products in their own right, such as Auto ABS and Credit Card ABS.

• Residential Mortgage-Backed Securities (RMBS) are backed by pools of mortgage loans created by banks and other financial institutions. They represent the largest component of the European ABS market and are typically the most liquid
• Consumer Receivables include a large variety of unsecured consumer debt types that have been securitized, including auto loans, credit card receivables and unsecured personal loans
• Commercial Mortgage-Backed Securities (CMBS) are mortgage-backed securities backed by commercial rather than residential mortgages, using structures similar to other forms of ABS
• Collateralized Loan Obligations (CLOs) are pools of corporate loans refinanced in a securitized structure, where pools can be static or actively managed by a specialist loan manager

Investment team

From the beginning we built our team of investment professionals to reflect the structure of today’s fixed income market. From structuring and ratings specialists to trading and investment banking, we have people who know the bond markets inside out. Our team is deliberately drawn from a diverse range of nationalities and cultures. This is how we look to escape the echo chamber, using diverse insights from people who are not having the same conversations and reading the same press.