Understanding Asset-Backed Securities (ABS)
For many investors, ABS can be an alternative to other debt instruments like investment-grade corporate bonds. While corporate bonds are an important component of a fixed income portfolio, the addition of ABS may help improve risk-adjusted returns due to their attractive yields, high credit quality, inherently low duration, and low correlation to equities.
Explore how you can access ABS through our ETFs
Securitized Income ETF
For investors looking for income diversification and higher yield potential.
What are asset-backed securities?
Asset-backed securities are pools of similar cash-flowing assets that are packaged together, or securitized, into investable securities and sold to investors. ABS give investors access to either consumer or commercial credit depending on the nature of their cash flow streams.
Size and composition of the ABS market
At over $750 billion in size, the U.S. ABS market allows for investment in a wide variety of consumer and commercial cash-flowing assets. Auto loans, credit cards, and student loans make up about 60% of the U.S. ABS market, while the remainder is comprised of smaller sectors, such as franchise fees, aircraft leases, cell towers, and timeshares.
ABS make up a significant portion of the $14 trillion U.S. securitized market
Source: Bank of America, as of December 2023.
Key characteristics of ABS
1
Attractive yields
Despite their stronger credit ratings, ABS may offer yields comparable to investment-grade corporate bonds of similar duration.
2
Exposure to consumer lending
In contrast to many other fixed income assets, ABS provide access to the vast U.S. consumer lending market. While U.S. Treasuries and corporate bonds give investors exposure to the U.S. government and to corporate issuers, respectively, ABS offer investors access to a broad range of consumer and commercial loans, or cash flow streams.
3
Strong credit ratings
Due to various credit-enhancement provisions within their structure, over 80% of the U.S. ABS market is rated A or higher, with 55% of the market carrying the coveted AAA rating.
Default rates for ABS have historically compared favorably to investment-grade corporate credit: From the late 1990s through June 2024, no AAA ABS has defaulted, while 2002 was the only year in which the AA bucket experienced a default.
4
Low interest-rate sensitivity
ABS has generally exhibited lower duration than many other fixed income sectors, making them less sensitive to changes in interest rates.
5
Low correlation to equities
ABS have historically exhibited low correlation to equities, potentially making them a good diversifier for multi-asset portfolios.
The importance of active management when investing in ABS
There is no one benchmark that is representative of the ABS investment universe. As such, we believe investors who want to invest in ABS should seek out experienced active managers with a proven track record of investing in securitized markets.
ABS cover a broad universe of subsectors that each have distinct fundamental and technical characteristics and that may perform differently through the market cycle. Therefore, investing in ABS requires specialized skill and experience to analyze each asset’s investment case and determine how it might perform under varying economic scenarios.
Why Janus Henderson for securitized investing?
Expertise and leadership: Our portfolio management team's nearly 60 years of combined experience, backed by a dedicated global team, stands as a testament to our success. This expertise ensures we remain at the forefront of securitized investment management.
Market dominance: Janus Henderson is the 3rd largest active fixed income ETF provider globally based on U.S. markets and the 9th overall active ETF provider in the U.S.
Source: Morningstar Asset Flows as of September 30, 2024.
$26.8B
Firmwide Securitized assets under management
Source: Janus Henderson Investors as of December 31, 2023.
Note: Firmwide assets include securitized products available outside of the U.S. and securitized portions of other fixed income strategies.
Dedicated securitized expertise
Head of US Securitised Products | Portfolio Manager
Head of Structured and Quant Fixed Income| Portfolio Manager