Main Street versus Wall Street: why the consumer is king in securitised credit

If you believe aspects of the markets are in the later stages of a credit cycle, picking your spots can be quite advantageous. We contrast corporate debt or equity (what we call “Wall Street” finance), with the US consumer and housing finance (what we call “Main Street” finance).

11/10/2019

Authors

Michelle Russell-Dowe
Global Head of Securitised Products and Asset Based Finance, Schroders Capital
Anthony Breaks, CFA
Portfolio Manager

One of the beautiful things about the universe of securitised debt is the diversification it provides and the ability for investors to pick their spots. If you believe aspects of the markets are in the later stages of a credit cycle, picking your spots can be quite advantageous. We believe Quantitative Easing (QE) has distorted financial markets and many traditional asset classes have become quite expensive. We contrast corporate debt or equity (what we call “Wall Street” finance), with the US consumer and housing finance (what we call “Main Street” finance). We think the latter appears to be in very good shape, making consumer-driven segments of securitised an attractive alternative to traditional income-generating investments.

Given the conditions today, including the regulatory environment for consumer lending and banks, and the growth in corporate debt issuance, Main Street is in better shape than Wall Street. With this landscape, we think the consumer, housing and real estate debt is a more attractive way to seek income, return, and diversification using an asset class that many investors often overlook. We’d argue that it is critical to keep three key factors in mind:

  • the potential for change in policy
  • level of leverage in the different sectors, and
  • 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.

Read the full report

Important Information:

This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at www.schroders.com.au or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at www.schroders.com.au. All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.

Authors

Michelle Russell-Dowe
Global Head of Securitised Products and Asset Based Finance, Schroders Capital
Anthony Breaks, CFA
Portfolio Manager

Topics

Credit
Australia
Our sales team is available to discuss with you any investment opportunities.
Follow us

This website is owned and operated by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473).  Your access to this website is subject to the Terms of Use found by clicking the ‘Important Information’ link below.  By using this website, you agree to be subject to these Terms of Use.