Diversify to defend against portfolio drawdowns
May 13, 2019
Investing in securitized fixed income
Jason Callan, Senior Portfolio Manager and Head of Structured Assets
The securitized assets market is inherently complex, and there are a lot of moving variables.
Securitized products are bonds that are ultimately backed by underlying assets and cash flows of those assets. The universe is very broad and diverse from very high quality assets such as government-guaranteed securities like agency mortgages to riskier assets that are ultimately more reflective of the credit markets, such as non-agency mortgages, commercial mortgages, the asset-backed securities market as well as CLOs.
Some of the most attractive risk-adjusted returns have come from investments that focus on the recovering housing market, the strength of the U.S. consumer. Those investments have not only delivered very attractive absolute returns but have done so with significantly lower levels of volatility than a lot of traditional corporate investments.
The correlation in structured products is one of the factors that make securitized assets very attractive. Traditionally, they behave very differently than both Treasuries as well as corporate securities, and as such, it really improves the efficiency of overall portfolios
Active management is crucial to investing in the securitized market space, because most of the interesting investment opportunities reside outside of traditional benchmarks -- such as non-agency mortgages, such as some of the more nontraditional segments of the asset-backed market. Those are areas that we have the investment capabilities and research capabilities to be able to appropriately analyze the investments.
What do we look for? We look for a couple things. First and foremost is the quality of the underlying collateral. And then secondarily is the capital structure, so how well-secured do we feel like our investment is based on where we participate within the capital structure.
The views expressed are as of April 2018, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.
Mortgage- and asset-backed securities are affected by interest rates, financial health of issuers/originators, creditworthiness of entities providing credit enhancements and the value of underlying assets.
Investment products are not federally or FDIC-insured, deposits or obligations of or guaranteed by any financial institution and involve risks, including possible loss of principal and fluctuation in value.
Securities products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC.
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