Securitized credit is an increasingly important component of the global fixed income market, now accounting for around US$5 trillion globally (excluding US agency MBS). This is larger than the US high yield market, and yet the asset class remains structurally under-represented in most institutional portfolios.
Securitized credit has historically offered a differentiated risk and return profile when compared to other fixed income sources. This has been underpinned by features such as diverse collateral exposures, structural protection, and a predominantly floating-rate nature.
Critically, the spectrum of risk and return profiles within the asset class means it can serve multiple roles within a fixed income portfolio:
• as a cash enhancement in the liquid high-grade, short spread duration space;
• as a complement to traditional investment grade exposures;
• and as a source of income in excess of corporate high yield and the loans market, in lower mezzanine positions.
In this note we explore the solutions that the asset class can offer today.
