U.S. securitized: Finding opportunities in AI, and elsewhere, as a new era dawns
Global Head of Securitized Products John Kerschner discusses how macroeconomic themes are impacting securitized markets and where he sees opportunities in his 2026 outlook.
5 minute watch
Key takeaways:
- While the U.S. economy remains resilient, certain areas are growing as others lag. This unevenness creates both risks and opportunities for fixed income investors.
- Securitized assets stand to benefit from the artificial intelligence (AI) infrastructure buildout, and we believe we are still in the early stages. With the administration’s focus on housing affordability, we also think the outlook for mortgage-backed securities is positive.
- Given the uncertainties in the macro environment and the nuances inherent in securitized markets, active management is critical to strategically allocating to the sectors we think stand to benefit in 2026.
IMPORTANT INFORMATION
Actively managed investment portfolios are subject to the risk that the investment strategies and research process employed may fail to produce the intended results. Accordingly, a portfolio may underperform its benchmark index or other investment products with similar investment objectives.
Artificial intelligence (AI) focused companies, including those that develop or utilize AI technologies, may face rapid product obsolescence, intense competition, and increased regulatory scrutiny. These companies often rely heavily on intellectual property, invest significantly in research and development, and depend on maintaining and growing consumer demand. Their securities may be more volatile than those of companies offering more established technologies and may be affected by risks tied to the use of AI in business operations, including legal liability or reputational harm.
Collateralized Loan Obligations (CLOs) are debt securities issued in different tranches, with varying degrees of risk, and backed by an underlying portfolio consisting primarily of below investment grade corporate loans. The return of principal is not guaranteed, and prices may decline if payments are not made timely or credit strength weakens. CLOs are subject to liquidity risk, interest rate risk, credit risk, call risk and the risk of default of the underlying assets.
Mortgage-backed securities (MBS) may be more sensitive to interest rate changes. They are subject to extension risk, where borrowers extend the duration of their mortgages as interest rates rise, and prepayment risk, where borrowers pay off their mortgages earlier as interest rates fall. These risks may reduce returns.
Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.
Recession fears & K-Shaped economy
John Kerschner: People have been calling for a recession in 2025. And even if you go back to 2022, it’s the same thing. The US economy is massive, $30 trillion, and incredibly resilient.
We have the Big Beautiful Bill stimulus that’s coming in early 2026, and some more tax refunds, things like that, plus the bounce back from fourth quarters. We expect GDP to be north of 3%.
The bottom end of the economy not doing as well, but the top end doing very well. And the overall GDP numbers are very solid right now.
We definitely agree that the K-shaped economy is a real thing. There’s no question, the higher-end consumer that has a nice stock portfolio, that has a job, that’s pretty secure, has been doing very well. Whereas the lower-end consumer, coming out of COVID, was getting a lot of raises and doing much better. But now those have gone away, and the job market is less secure. There’s a lot of concern about that. Spending at the lower end has definitely gone down. If you look at spending on luxury goods, or travel, or high-end hotels, doing very, very well.
The way we are dealing with that is to focus more on the prime consumer. You want to make sure that you’re higher up in the capital stack, AAA, AA, A, as opposed to below investment grade in those asset classes.
We actually think of this as an opportunity for our investors. Because when things like these narratives go out there, people get very scared. They tend to completely ignore sectors. And that means they get cheaper. And that’s where active management comes into play.
Subsectors to watch in 2026
Kerschner: We’re pretty bullish on overall housing. What we really like right now is mortgage credit. Obviously, the housing markets in the U.S. have slowed down. Home price appreciation should be low single digits this year. But that being said, there is still quite a bit of demand out there. If you listen to what’s coming out of the administration, a big focus on affordability. And that includes all consumer goods, but particularly housing. They’ve said everything is on the table.
There’s been some talk of a 50-year mortgage. I don’t really think that’s going to happen. the administration obviously wants lower rates, obviously wants housing to be more affordable, and they’re thinking about ways to do that. If rates do come down, and we do think the Fed is likely to cut at least one or two more times, that will be very good for home price appreciation.
AAA CLOs & Strategic Allocation
Kerschner: When people start thinking about, should I buy a floating-rate asset class when the Fed is cutting rates? What they’re really saying is, I know how to time the market. We think that’s a very dangerous way to think. And if you have a very low-risk bucket in your portfolio, whether that’s cash or something like that, it makes sense to think about AAA CLOs, because they have traditionally returned about 150 basis points more than cash and they are still yielding a lot more than other fixed income asset classes.
Don’t try to time the market. Buy something that’s very high quality in AAA CLOs and still fairly high yielding. And then if we’re wrong about what the Fed is going to do or what interest rates are going to do, then you’re in a very good position to have your portfolio be resilient to higher interest rates down the road.
AI & Securitized
Kerschner: I think there’s been a lot of consternation about the bubble in AI. Bottom line, AI Is here to stay.
If you look at securitized and what they call digital infrastructure, which includes data centers, that issuance was about $10 billion last year. It’ll be about $30 billion this year. Next year, they are forecasting about $60 billion.
There’s a lot more debt issuance around it. Because of that, that has caused spreads to widen out.
We actually think there’s some good relative value there, with the cautionary addition that you need active management for this. There are different types of deals out there with different tenant bases, different locations, different technologies. And just buying the market, I don’t think makes sense, because there could be some technological obsolescence.
Related insights
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.
There is no guarantee that past trends will continue, or forecasts will be realised.
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5 minute watch
Key takeaways:
- While the U.S. economy remains resilient, certain areas are growing as others lag. This unevenness creates both risks and opportunities for fixed income investors.
- Securitized assets stand to benefit from the artificial intelligence (AI) infrastructure buildout, and we believe we are still in the early stages. With the administration’s focus on housing affordability, we also think the outlook for mortgage-backed securities is positive.
- Given the uncertainties in the macro environment and the nuances inherent in securitized markets, active management is critical to strategically allocating to the sectors we think stand to benefit in 2026.