The problems at Jayhawk Acceptance Corp. and Mercury Finance Co. are unjustly tarring the overall asset-backed market, a portfolio manager asserts.

The manager, Joseph DeMichele, vice president of asset-backed investing at Conseco Capital Management, says now is the time for enterprising investors to scoop up securities backed by mortgages, home equity loans, and home improvement loans.

"A lot of the asset-backed market is really well structured," Mr. DeMichele said. "There is usually enough credit support to withstand high levels of losses."

Asset-backed investors became skittish this month when the two subprime auto lenders ran into financial troubles-Mercury allegedly because of fraud and Jayhawk because of credit troubles.

Additionally, subprime auto lender Reliance Acceptance Group, a new spinoff of Cole Taylor Financial Group, said problem loans would force a fourth-quarter loss.

When word of the difficulties hit the street, "the first thing I thought is, I'm happy I didn't own anything issued by them," Mr. DeMichele said.

He also began looking for opportunities within the subprime or asset- backed market. "Some securities would appear to be more risky than others," Mr. DeMichele said. A lot depends on borrowers' payment patterns, he said. "You'd pay your mortgage or home equity loan before you'd pay your car loan."

Mr. DeMichele is one of 24 analysts who look over investments that Conseco Capital Management, based in Carmel, Ind., makes on behalf of state pension funds, insurance companies, and endowments.

He does a lot of work for the company's $400 million institutional fixed-income portfolio, made up of mortgages, municipal bonds, corporate bonds, and Treasury securities.

The fund, headed by Gregory J. Hahn, senior vice president of portfolio analytics, counts as its largest client the Public Employees Retirement Fund of Indiana, with $100 million invested.

"The challenge in fixed-income investing is, how do you measure risk," Mr. Hahn said. "We tend to focus on the really high-quality stuff."

The approach has paid off. Mr. Hahn's fund returned 5.42% last year, compared to 3.63% for the Lehman Brothers Aggregate, a widely followed fixed-income index.

The Conseco portfolio uses a combination of high-tech equipment and common sense to come to its investment conclusions, Mr. Hahn said. "The No. 1 rule in our shop is we never invest in something unless we thoroughly understand it."

Mortgage loans and other asset-backed securities make up about 25% of the portfolio. That percentage has not changed for about a year, although the fund has shifted somewhat from pure mortgage investments to more home equity and home improvement securities.

The redistribution of assets provided "better relative value" because prepayment risks were too high for the returns certain mortgage issues offered, Mr. Hahn said.

But investing is all about timing, and mortgages can often be counted on to pay better than corporate or Treasury bonds, Mr. Hahn said. In fact, he's now looking at more-seasoned mortgage securities to increase yields without too much prepayment exposure.

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