Securitised credit: Main Street versus Wall Street
We do not predict a dull year for markets in 2019 and we believe that strong defence will become increasingly important, especially with a rise in market volatility. Our view is that select areas within asset-backed securities (ABS) retain several benefits that place each at an earlier stage in their respective credit cycles, compared to more traditional credit risk.
Throughout this paper we will refer to the consumer segments (ABS and MBS - mortgaged-backed securities) as Main Street. We refer to corporate related credit as Wall Street. We believe that given the conditions today, Main Street is in better shape than Wall Street, and given our defensive bias, appears a more attractive way to play the game today.
We’d argue that it is critical to keep three key factors in mind: 1) the potential for change in policy; 2) level of leverage in the different sectors; and 3) the level of outstanding debt and issuance. In doing so, we believe we can identify a defensive core allocation among more consumer-driven areas of the market and earn income while avoiding exposure to investments with imbalances, high valuations, weaker fundamentals and high sensitivity to shock as policy changes.
Please find the full paper below