Key takeaways:
- The securitised universe represents a diverse opportunity set, offering investors varied risk and return characteristics, alongside high-quality income and resilient returns.
- It can offer diversification to fixed income portfolios, while the amortising structures and shorter durations can help reduce overall credit and interest rate risks.
- Investing in securitisations requires not only a unique and broad insight into the dynamics of securitisation markets, but also an ability to understand and analyse the risks in different types of securitisation transaction.
Investors benefit from securitised due to its defensive nature and a broad opportunity set as well as attractive relative value. Securitised offers better spreads compared to similarly-rated corporate bonds, historically lower default rates, and more attractive risk-adjusted returns (higherSharpe ratios). It is a misunderstood asset class, but misconceptions should not deter investment.
Securitisations serve as a valuable diversifier, reducing risks in core fixed income portfolios due to their amortising structures, shorter durations and exposure to ‘real economy’ and consumer-driven risks. European securitised has performed well, offering strong risk-adjusted returns compared to investment grade corporate bonds without liquidity concerns, even during market stress.
Specialist expertise can help navigate the nuances of the market. It enables investors to effectively evaluate risk against opportunity, adhere to regulatory standards, integrate ESG considerations effectively, and ultimately achieve long-term stability and diversification of returns. In other words, maximise the benefits of securitised.
In this Case for Securitised, we take a deep dive into the sector and evaluate each of its distinguishing features that enable the asset class to be combined successfully with other fixed income in diversified portfolios.
