Five Things To Consider When Investing In ABS

Despite boasting some of the lowest default rates across the global fixed income market, as well as typically higher yields and greater investor protections than vanilla corporate bonds of the same rating, Asset-Backed Securities (ABS) remains an under-utilised market for many pension funds.

TwentyFour Asset Management is one of Europe’s most prominent ABS buyers, and one of the few whose portfolios invest across the entire spectrum of the market, from triple-A rated Residential Mortgage-Backed Securities (RMBS) to the lower rated tranches of collateralised loan obligations (CLOs).

TwentyFour partner Ben Hayward, who manages the firm’s ABS business line, outlines five things every investor should keep in mind when looking at this compelling asset class.

1. Look properly at performanceChart 1: European RMBS Redemptions, Expected and Realised Losses 2000-2016 12. Liquidity is relativeChart 2: ABS & CLO BWICs ($mm) 2017-20193. Geography matters4. Favour flexibilityChart 3: ABS & Corporate Bond Spreads by Rating and Sector5. Get clarity from your manager