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US Asset-Backed Securities: A securitized products primer

Portfolio Managers John Kerschner and Securitized Products Analyst Will Palamet discuss how asset-backed securities (ABS) are created, their key characteristics, and what they might offer investors.

John Kerschner, CFA

John Kerschner, CFA

Head of US Securitised Products | Portfolio Manager


Will Palamet

Will Palamet

Securitised Products Analyst


26 Jul 2024
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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These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

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John Kerschner, CFA

John Kerschner, CFA

Head of US Securitised Products | Portfolio Manager


Will Palamet

Will Palamet

Securitised Products Analyst


26 Jul 2024
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.