Portfolio Q&A: Multi Income Fund
A quick look at how the Fund is positioned as recession risks loom and financial conditions tighten.
1. What is securitisation1?
You may have come across the acronyms, ‘ABS’ and ‘MBS’, and wonder if they are describing alphabet soup. They are not. They are part of the securitised debt universe, which includes certain assets such as mortgages or other types of loans which are pooled together and repackaged into interest-bearing securities.
2. What are the roles of securitised assets1,2 within the overall fixed income portfolio?
Yield3 seeking and volatility management are among the top priorities for investors as market conditions change. Employing a flexible fixed income strategy that invests in a range of uncorrelated assets could help investors manage volatility as the individual type of fixed income asset can react differently to market changes.
Securitised debt1, for example, could act as a diversifier within the overall portfolio because it tends to be less correlated to equities and high-yield (HY) bonds4. Unlike equities and HY bonds4 which are more closely tied to corporate balance sheets, the underlying assets of securitised debt are mostly loans extended to individuals. This means tapping into the balance sheets of consumers.
As shown in the chart5, household savings have been on the rise, which could generate pent-up consumption demand. Consumption strength and declining household debt are positive for ABS2.
Household savings and consumption5
Moreover, extraordinary fiscal support for US consumers because of the global public health crisis could bode well for securitised assets such as consumer ABS, auto and personal loans2. The reopening of economies, and return-to-the-office and related activities are supportive of CMBS2.
Long-term demographic trends are leading to household formations, driving demand for housing and benefiting non-agency MBS, multifamily credit and single-family rentals2.
Unlike corporate bonds, most ABS are secured by some type of collateral. They are also backed by different types of loans extended to many individual borrowers.
MBS also exhibited relatively lower volatility than individual fixed income sectors such as global investment-grade corporate and HY bonds4, as shown in the chart6. The securitisation market has also regained ground over the past decade.
Yields and correlations of fixed income returns to equities6
Explore income opportunities
Investing across multiple fixed income sectors2 could help investors, based on their objectives and risk appetite, better tap into potential income opportunities as market conditions change. Hence our strategies go beyond the traditional sectors to explore the opportunities securitised assets1 can present as a part of the overall investment portfolio.
Diversification does not guarantee investment return and does not eliminate the risk of loss.