In this episode, Portfolio Managers John Kerschner and Nick Childs discuss the asset-backed securities (ABS) market, identifying key risks and opportunities for investors seeking to navigate the evolving fixed income landscape.
Key takeaways
- ABS has historically offered attractive spreads with shorter durations compared to corporate credit, providing yield enhancement without significant interest rate risk. In our view, this makes ABS appealing for investors looking to diversify their fixed income exposure from traditional core and core-plus strategies.
- Major ABS subsectors include auto loans, credit cards, and student loans, alongside more specialized assets like cell towers and data centers, reflecting a wide variety of cash flows that may be securitized.
- While the U.S. ABS market is substantial at nearly $900 billion, ABS represents less than 0.5% of the Bloomberg U.S. Aggregate Bond Index. Therefore, we believe investors may need to adopt an active approach and look beyond traditional benchmark indices to gain exposure to ABS.
