At Extreme Investor Network, we understand the importance of staying on top of current market trends and opportunities. Headwinds may be emerging in the consumer space, leading some investors to question the impact on asset-backed securities (ABS). ABS are securitized products backed by income-generating assets like auto loans or credit card receivables. These products have been popular among investors due to their attractive yields.
While consumers are still spending money, there are concerns about borrowing and falling behind on payments. Delinquencies have risen above pre-Covid levels for both credit cards and auto loans, indicating potential challenges ahead. Despite these concerns, experts like John Kerschner, head of U.S. securitized products at Janus Henderson, remain optimistic about the ABS market.
Kerschner emphasizes the importance of due diligence in assessing the robustness of underwriting and credit models. He points out that the ABS market for auto loans is relatively small compared to the total outstanding balances, with a significant portion rated Triple-A. This suggests a level of stability in the face of economic slowdowns.
In addition to auto loans, experts see value in sectors like equipment and credit-linked notes issued by banks within the ABS market. These niche areas offer opportunities for investors seeking higher yields. Nick Travaglino of Nuveen also sees potential in consumer-focused papers and unsecured consumer loans that are securitized.
Shannon Saccocia, chief investment officer of NB Private Wealth, advises a cautious approach to ABS positioning in portfolios. While defaults in fixed income may be idiosyncratic, she believes there are still opportunities in securitized products, especially those trading at wider spreads. With a discerning eye, investors can identify value in the ABS market, particularly in mortgage-backed securities.
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