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Making Generalizations

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It’s human nature to generalize with broad strokes; one bad apple can spoil the whole bunch, as the saying goes. Our industry is filled with generalizations, from panning all insurance companies even when Berkshire Hathaway shines as a pillar of credit strength, to running from all Euro credits even when select Euro Financials are some of the strongest credits to be had. Similarly, the industry embraced AAA-rated auction rate securities and AAA-rated money market funds by making the generalization that they were all the same because of their ratings. Differentiating details, whether we’re talking about apples or securities, is extremely important but it takes both time and resources.

Lessons learned from our 20 years of credit selection and thought leadership have reinforced the benefits of differentiating the details when it comes to individual credit selection or selection of money market funds. Asset-backed securities are an example of one asset class that has been panned as a whole since the credit crisis. However, in sifting through the details of asset-backed securities, we find certain securities that can add both credit strength and yield to short portfolios. Within all security classes, individual securities need to be evaluated independently to differentiate risk characteristics from the larger group. Therefore, in this month’s research spotlight, we attempt to separate the apples of asset-backed securities to differentiate the good from the rest.

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Best Regards,

Ben Campbell
President & CEO

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