Securitised credit: Main Street versus Wall Street
We take a closer look at how asset-backed securities can be used as a defensive asset for those seeking stable income in today’s investment environment. Michelle Russell-Dowe Head of Securitized, US Fixed Income
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.
Opinions, estimates and projections in this article constitute the current judgement of the author as of the date of this article. They do not necessarily reflect the opinions of Schroder Investment Management Australia Limited, ABN 22 000 443 274, AFS Licence 226473 ("Schroders") or any member of the Schroders Group and are subject to change without notice. In preparing this document, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by us. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this article. Except insofar as liability under any statute cannot be excluded, Schroders and its directors, employees, consultants or any company in the Schroders Group do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this article or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this article or any other person. This document does not contain, and should not be relied on as containing any investment, accounting, legal or tax advice. Schroders may record and monitor telephone calls for security, training and compliance purposes.