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US Asset-Backed Securities: A securitized products primer
Portfolio Manager John Kerschner discusses how asset-backed securities (ABS) are created, their key characteristics, and what they might offer investors.
26 Jul 2024
14 minute read
14 minute read
Key takeaways:
- At over $800 billion in size, the U.S. ABS market allows for investment in a wide variety of consumer and commercial cash-flowing assets, including but not limited to auto loans, credit cards, student loans, aircraft leases, data centers, and timeshares.
- ABS exhibit strong credit ratings, with more than half of all U.S. ABS carrying the coveted AAA credit rating. This compares favorably to the corporate investment-grade bond market, which includes only two companies that are rated AAA.
- 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.
Asset-backed securities (ABS) are pools of similar cash-flowing assets that are packaged together, or securitized, into investable securities and sold to investors.
The largest subsectors of ABS include auto loans, credit card receivables, and student loans, all of which grant investors exposure to the consumer credit market. A range of smaller subsectors give investors access to either consumer or commercial credit depending on the nature of their cash flow streams.
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26 Jul 2024
14 minute read
14 minute read
Key takeaways:
- At over $800 billion in size, the U.S. ABS market allows for investment in a wide variety of consumer and commercial cash-flowing assets, including but not limited to auto loans, credit cards, student loans, aircraft leases, data centers, and timeshares.
- ABS exhibit strong credit ratings, with more than half of all U.S. ABS carrying the coveted AAA credit rating. This compares favorably to the corporate investment-grade bond market, which includes only two companies that are rated AAA.
- 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.