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Securitized Credit: The Best Offense Is a Good Defense

September 2019 
by Michelle Russell-Dowe

Surveying the current state of the market in general, we believe that playing a good defense, especially as market volatility has increased, makes sense.

Michelle Russell-Dowe
Head of Securitized Credit for Schroders Investment Management

 

In this paper, we refer to the consumer segments (asset-backed securities, or ABS, and mortgage-backed securities, or MBS) as Main Street. We refer to Corporates as Wall Street. We believe that given the conditions today, Main Street is in better shape than Wall Street, and given our defensive bias, we think it’s a more attractive way to play the game.

We’d argue that it is critical to keep three key factors in mind: (1) The potential for change in policy;  (2) Level of leverage in the different sectors; and (3) The level of outstanding debt and issuance.

In doing so, we believe we can identify a defensive core allocation among more consumer-driven areas of the market—and earn income—while avoiding exposure to investments with imbalances, high valuations, weaker fundamentals, and high sensitivity to shock as policy changes. 



Important Risks: Investing involves risk, including the possible loss of principal. • Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. 

The views expressed herein are those of Schroder Investment Management (Schroders), are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Schroders or Hartford Funds. 

 

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