Canadian institutional investors have been pushed to alter their fixed-income strategies in response to the credit crunch and the seizing of the asset-backed securities market, according to new research from Greenwich Associates.

Greenwich also lauds RBC Capital Markets as the best-performing dealer during the crunch.

The firm reports that 40% of the country’s institutions are making changes to their fundamental fixed-income investment strategies. Of those, two thirds say they are upgrading the credit quality of their portfolios, one third are looking to unwind underperforming positions, almost 30% say they are shortening portfolio duration, and 25% of firms are in the market looking to take advantage of investment opportunities in illiquid instruments, primarily investment-grade credit products.

“These findings suggest that the credit crisis has been widely disruptive for Canadian investors and quite painful for a smaller group of institutions with relatively high levels of exposure to ABS products hit the hardest,” says Greenwich Associates consultant Peter Kane. “However, the research results also reinforce the view that the crisis has been less catastrophic in Canada than in the United States.”

Greenwich also reports that asset-backed securities trading volume tumbled more than 70% to just $17 billion in 2007-2008 and some Canadian institutions say that the difficulties in ABS are far from over. Asked to pick the single issue that will most affect fixed-income markets over the next 12-24 months, several institutions participating in the Greenwich Associates study cite the “meltdown in ABCP” and its effect on the broader fixed-income market and on spreads.

“The results of our research suggest that the ABS market is still being sorted in Canada,” says Greenwich’s Woody Canaday. “It remains likely that market-wide attempts to alleviate the crisis will eventually succeed. Most prominent among these efforts is the Montreal Accord, wherein investors would agree to extend their maturity of their paper — predominantly corporate ABS paper, whether it be mortgages, credit cards, automobiles, etc. — to help liquidity and allow the whole process to come together in some fashion.”

Greenwich asked investors to rate the level of support of their dealers throughout the crisis, and found that by far the highest marks go to RBC Capital Markets, followed by TD Securities. More than 133 institutions participated in the survey and were asked to rate their dealers in a list of categories including supportiveness during the credit crisis, understanding of investor needs, and treatment of sensitive trading information. From these responses Greenwich Associates compiled an overall reputational score for each of the major brokers, which it calls Relationship Capital. RBC Capital Markets and TD Securities score highest on this scale.

Based in part on this performance, these two dealers have emerged from the turmoil of the past 12 months with strongest reputations among Canadian institutions, it says. That said, Greenwich maintains that it is too early to say whether the disruptions of the last year will have a meaningful effect on the competitive positioning of individual Canadian fixed-income dealers. RBC already stands at the high end in terms of market penetration, and also leads all other dealers with a market share in fixed-income trading of almost 19%. TD Securities and BMO Capital Markets are next with market shares of approximately 16% and 14%, respectively, it says.

RBC Capital Markets also stands out from its competitors in terms of client ratings of service quality in fixed income, Greenwich reports. The firm has built a lead over the other Canadian dealers on the Greenwich Quality Index — a gap that actually widened from 2007 to 2008.