Portfolio Q&A: Multi Income Fund
A quick look at how the Fund is positioned as recession risks loom and financial conditions tighten.
Securitised debt is one of the key components of the fixed income market. But the subprime mortgage crisis, which started in 2007 and triggered the Global Financial Crisis, gave securitisation a bad name.
A decade on, the securitisation market has regained much ground. We see opportunities and are using our expertise to harvest yield and manage risk. It’s not as devastating after all.
Then
Weak loan underwriting process
Now
Enhanced loan underwriting standards
US borrowers struggled to repay mortgage
US household leverage declines
Structural flaws in the market
New regulatory frameworks
Securitised debt4 in the current context of fixed income investing
An unconstrained strategy invests opportunistically across sectors and geographies in the fixed income universe, allowing investors to go beyond traditional bonds in their search for yield. For example:
ABS
Agency MBS
Overall, it is worthwhile for investors to be mindful of the risks before investing in the securitised debt market. Nonetheless, investment risks could be managed through diversification with the help of an active manager.
1 Source: “The rebirth of securitisation: Where is the private label mortgage market?”, Urban Institute, September 2015.
2 Source: FactSet, FRB, J.P. Morgan Asset Management, Bureau of Economic Analysis. Data include households and non-profit organisations. First quarter 2019 figures for debt service ratio is J.P. Morgan Asset Management estimates. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.03.2019.
3 Source: US Securities and Exchange Commission (http://www.sec.gov/spotlight/dodd-frank/assetbackedsecurities.shtml).
4 For illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances and market conditions.
Investment involves risk. Investors should consult professional advice before investing. The opinions and views expressed here are those held by the author as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice.