James Torgerson
Senior Research Analyst
Fixed income is the largest global financial market and often one of the largest allocations within institutional investors’ portfolios. A typical fixed income allocation implements an investment grade anchor with a few “satellite” mandates — most commonly high yield bonds, leveraged loans, and emerging market debt — that carry more credit risk but provide higher levels of yield. Fixed income portfolios are often over-exposed to corporate borrowers through both anchor and satellite allocations. Additionally, these satellite allocations usually increase corporate credit risk while reducing equity diversification that fixed income is supposed to provide. Securitized credit provides higher yields and more compelling diversification benefits.
Securitized credit is a large asset class that has been largely ignored by institutional investors due to under-representation in fixed income indices, perceived complexities, and a stigma from its role in the Great Financial Crisis. While factors responsible for under-allocation to securitized credit have merits, these have caused investors to overlook the benefits of the asset class. Securitized credit provides a spread and yield premium relative to similarly rated corporate credit, diversified risk exposure to various credit and market cycles, and lower correlation to both traditional fixed income and equities. Overall, securitized credit’s attributes can help to further optimize portfolio structures.
Read > A Portfolio Needs Structure: An Overview of the Securitized Credit Asset ClassThe opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
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